Washington passes legislation to make bankruptcy options tougher for Americans. Senators and House Members demand that consumers be held responsible for their spending. Now Wall Street is apparently expressing concern that the economy will suffer because consumer spending is slipping.
As the Palm Springs Desert Sun reported on November 5, Wall Street’s concerns are ultimately rooted in the rather uncomfortable fact that 70% of the US gross domestic product relies on consumer spending. So if fuel bills are going up, grocery prices are going up, credit card minimum monthly payments are going up and salaries are...well…not, what’s a consumer to do?
Listen to Washington, and they tell you “be responsible” and do not spend what you don’t have. Of course, Washington, with its budget deficits ought to move away from the “do as I say, not as I do” mantra that my mom once espoused when she told me not to smoke cigarettes while she was hauling a Parliament. While the US government spends money it does not have, our leaders enacted bankruptcy reform. Wall Street on the other hand, is donning the holiday garland a little early and starting to whine that people are not spending enough. Get out there! Buy! Buy! Buy! PLEASE Buy!
Things that make ya go hmmmm.
How this will all play out is anyone’s guess. If the economy slips, slides or as the case may be plummets into a recession, will Wall Street blame Washington or the American consumer? Will Washington blame the American consumer or Wall Street? Given that we are heading into a mid-term election year, my bet would be that Washington will still blame Katrina. And who will the American consumer blame?
The issue is not uniquely American. Saturday’s Guardian Unlimited reported that personal bankruptcies in Britain are up over 40% from last year. An insolvency professional was quoted “…we live in a 'want now, have now' society where nobody saves up for anything any more. They just buy it and worry about paying for it later.” Yet Wall Street seems to be telling Americans that if we do not buy it now, we are going to pay later anyway.
Let’s assume for today that they are right. Let’s say that this slow down in consumer spending continues through the holidays. If we stumble into a recession in Q1 of 2006, will the new bankruptcy laws force consumers to struggle through an expensive and perhaps oppressive bankruptcy process to address their accumulated debt and ultimately delay any national economic recovery?
I’ll simplify it: how long and how bad will a recession be if Americans are not able to spend – as Wall Street needs them to do – because they are spending their limited resources on higher priced necessities and servicing debt. If the answer is “a long time” and/or “bad”, who gets the blame for that?
