America on the Edge

by: Mike Steinhardt

No matter how bad things have become during the past year, the permabulls have loved to mock the idea that the American consumer is on the edge. Never mind foreclosure rates, credit card debt, food/energy inflation, retail sales data, unemployment rates… just keep repeating that bears have been wrong about the consumer being tapped out for many years.

Here’s the way I see it: If a $600 check from the government is needed to keep consumers spending, we are on the edge. If $4 gasoline hurts consumers while $3 was just annoying, we are on the edge. If mortgage payment increases of a few hundred dollars per month cannot be sustained by homeborrowers and results in a wave of foreclosures, we are on the edge.

In my opinion, there is no margin for error left.  Even if things don’t get worse with home prices (good luck), or even if inflation does not continue (good luck), or even if gas prices don’t return to $4 or even if unemployment doesn’t get worse - that doesn’t mean that the consumer will get better.

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