Consumer Spending Turns to Saving as Recession Aftershocks Shake Confidence
By Mortimer Zuckerman
Of all the bubbles that have burst recently—the wealth bubble, the housing bubble, the credit bubble—the one whose bursting hurts the most is the bubble of confidence. The confidence of Americans is shaken not only in their own economic futures but in their business and financial leaders who once seemed to be bringing a new level of prosperity. These “masters of the universe” were thought of as financial savants, then idiot savants, and now just idiots. The root of the word credit comes from the Latin credere, which means “to believe,” but now the American public does not believe in the world of finance, and without that faith and trust, finance cannot work.
Everybody—consumers, bankers, small investors, pensioners, industrialists—is dazed and confused by talk of losses in the trillions of dollars, an avalanche that nobody foresaw or imagined. Today it seems almost self-evident that everyone borrowed too much, creating a level of debt that is crushing our economy. The government’s stimulus program and the bold actions of the Federal Reserve were timely and on a large scale, but banking debt still threatens to choke up any incipient recovery. Consumers and businesses are dependent on banks, but the banks lack the strong balance sheets and profit-making incentives to make the kind of loans that keep an economy humming.
Spending is tumbling not just in America but worldwide. We face a synchronized downturn in almost all countries. In the fourth quarter of 2008, the U.S. economy and Europe’s each contracted at an annual rate of 6 percent; Japan’s, by 13 percent. The drops came at lightning speed.
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