New surveys show that Consumers are Just a Paycheck or Two Away From Ruin.
The results of a bevy of surveys found a growing number of consumers are only a couple paychecks away from a household collapse even as many scramble to shore up savings. Rainy-day funds appear to be a distant memory as households burn cash to cover food and energy bills as well as mortgage and car payments.
A large number of households say that even one missed paycheck would spell financial ruin. And even in households that remain well off, the surveys show a festering fear that financial problems are lurking.
"This is flashing so bright red," said Paul Ballew, senior vice president of Nationwide Insurance Co. "Roughly 60% of the population was ill-prepared (financially) before the meltdown."
A MetLife study released last week found that 50% of Americans said they have only a one-month cushion -- roughly two paychecks -- or less before they would be unable to fully meet their financial obligations if they were to lose their jobs. More disturbing is that 28% said they could not make ends meet for longer than two weeks without their jobs.
And it's not just low-income earners who would find themselves financially challenged. Twenty-nine percent of those making $100,000 or more a year said they would have trouble paying the bills after more than a month of unemployment.
Long-term retrenchment
America's Research Group found that nearly 57% of the consumers it polled said they would spend less this year while virtually no one plans to spend more.
But this is not just a one-year thing, according to consumers surveyed by BIGresearch. Nearly 91% said they see this crisis bearing down on their spending decisions -- in effect, their lifestyles -- over the next five years.
Fifty-five percent said they will think carefully before they make a purchase and 51% said they expect to be more price-conscious when buying clothing and food.
"American consumers are hunkered down, bracing for a depression," said Britt Beemer, chief executive of America's Research Group. "The dramatic drops in shopping levels have no match in our database in the last 30 years."
Long-Term Retrenchment
This is a secular shift in attitudes, not a cyclical one. Spending is not returning to levels we saw in recent years. I am still expecting 500,000 or more jobs lost in each of the next two months. Some months of 750,000 losses or more are not out of the question.
Weekly Unemployment Claims Rise
The four week moving average keeps ticking up. A year ago it was a miserable 356K claims. It is nearly double that now. If the survey is correct, half of those face ruin within a month or two.
Bear in mind, it's not just the US that's in trouble.
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Central Banks In Panic Mode
Barrack Obama, Gordon Brown, Ben Bernanke, Alistair Darling, and misguided politicians everywhere are all attempting to stimulate lending when stimulated lending is what got us into the mess.
The sole exception is John Key, New Zealand's prime minister who courageously and correctly says "You Can't Spend Your Way Out of the Crisis."
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Time preferences have changed (people are saving not spending). Furthermore, rising unemployment everywhere suggests that borrowed debts cannot and will not be paid back. This debt destruction still exceeds printing, and printing still exceeds lending.
All that Bernanke specifically (and central bankers in general) are likely to accomplish is to delay the destruction of debt at taxpayer expense, and thus delay the recovery. There is no Keynesian free lunch, and no hyperinflation on the horizon either.
