Why The Economy Will Get Worse

I’m just full of joi de vivre. The economy will get worse. It just makes sense. Car companies are in long term trouble because people can drive older used cars. Retailers are in long term trouble because people can buy cute enough clothes at Wal-Mart and Target. The housing market won’t rebound for a while because people are already in more house than they need.

And as all these businesses constrict, people will lose jobs because their employers can’t pay them.

Everyone, lenders, businesses and individuals are holding onto cash and paying down debt. Why? Because the rate of return for paying off the debt is greater than the market. The market will hurt for a while. Maybe.

The New York Times has an article about the economy:

But even as worry about gas prices fades, it is being replaced by fear about the broader economy. Each 10-cent drop in gasoline prices puts $12 billion a year back in consumers’ pockets. Instead of spending that cash, people are trying to save it or cut their debt, many said in interviews.

“All that money is going right into paying off my credit cards,” said Jose Martinez, 33, as he pumped gas into his Dodge Charger at Ohio Gas Station No. 1 in Cleveland.

Moreover, the fall in gasoline prices is not translating into improved fortunes for automakers, at least not yet. Consumers said they remained wary of gas-guzzling cars on the theory that prices would rise again.

Can you blame consumers for battening down the hatches after all the fear talk? On the other hand, it’s not really so awful that Americans might be getting back to more reasonable spending. However, as people lose jobs, they’ll live on credit cards deepening the crisis.

And it’s a worldwide phenomenon, lest the Germans engage in too much schadenfreude.

Cross-posted at MelissaClouthier.com where I share some thoughts about Anne Hathaway that would be inappropriate for high-brow readers such as yourselves.

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