“Worst Is Yet to Come:” Americans’ Standard of Living Permanently Changed
Posted Feb 17, 2009 12:53pm EST by Aaron Task in Investing,
There’s no question the American consumer is hurting in the face of a burst housing bubble, financial market meltdown and rising unemployment.
But “the worst is yet to come,” according to Howard Davidowitz, chairman of Davidowitz & Associates, who believes American’s standard of living is undergoing a “permanent change” – and not for the better as a result of:
* An $8 trillion negative wealth effect from declining home values.
* A $10 trillion negative wealth effect from weakened capital markets.
* A $14 trillion consumer debt load amid “exploding unemployment”, leading to “exploding bankruptcies.”
“The average American used to be able to borrow to buy a home, send their kids to a good school [and] buy a car,” Davidowitz says. “A lot of that is gone.”
Going forward, the veteran retail industry consultant foresees higher savings rate and people trading down in both the goods and services they buy – as well as their aspirations.
Now let me quote from Paul Krugman’s article,’Decade at Bernie’s’:
‘Until very recently Americans believed they were getting richer, because they received statements saying that their houses and stock portfolios were appreciating in value faster than their debts were increasing.
…It’s worth remembering …notably in right-leaning publications like The Wall Street Journal, Forbes, and National Review’ (promoted the belief that the Americans could count on capital gains forever and ridiculed those who worried about low savings and high levels of debt.)
Now it seems those who worried were right after all. The surge in asset values had been an illusion and the debts were, not a surge but an hurricane to which Katrina is merely a sneeze.
There is a statutory warning on cigarette packs. Shouldn’t there be a similar warning on any financial pundit who paints a rosy picture on insufficient evidences, in the interests of public safety? As for the Wall Street Journal and similar journals who do the role of a barker for dubious bankers (if found to be true) ought to be held responsible for the mischief they are doing with impunity. I think in such a case they are equally culpable as doctors who are at present sued for malpractice.
In any case as Betty Davis says in All About Eve, a bumpy ride ahead is for all whose only fault was to believe in the system.