‘Tapped Out and Burned Out’

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Wilbur Ross, the billionaire, has put it best in a recent Bloomberg article. “The average consumer is tapped out and burned out,” Ross said in the piece which covers the general malaise that the economy is facing as a result of credit and housing gluttony.

This is the crux of the problem. Companies are reeling in poor bets made on consumer-credit like mortgages, 2nd mortgages, HELOCs, and credit cards. The country has a negative savings rate and mortgage and credit-card delinquencies are on exponential growth curves. No matter how low the interest rates, no matter how much cheap money is out there for institutions to lend, the borrowing public is tapped out. Without some type of insane debt forgiveness program (the likes of which are under debate in Congress) the American public will be paying off the bill for this bender for quite some time.

Until that bill is paid the economy will have to look elsewhere than consumers for resuscitation.

From Bloomberg:

“The average consumer is tapped out and burned out,” billionaire investor Wilbur Ross said in a Bloomberg Television interview July 1. “By the time November comes, there’s only going to be two issues: jobs and houses.”

U.S. employers cut 62,000 jobs in June, the sixth straight monthly decline, the Labor Department said July 3. Unemployment held at 5.5 percent after rising the most in two decades in May.

June sales plunged 18 percent at General Motors Corp., 21 percent at Toyota Motor Corp. and 28 percent at Ford Motor Co., the three biggest auto retailers in the U.S., as consumers facing $4-a-gallon gasoline bypassed fuel-thirsty trucks in favor of small cars.

J.C. Penney Co., the third-largest U.S. department-store chain, said June 25 it will open fewer stores next year and reduce capital spending, citing “challenging” times for consumers. Analysts predict J.C. Penney’s profit for the second quarter, ending in July, will sink to 38 cents a share before some costs, the average of 17 estimates in a Bloomberg survey. A year ago, profit on the same basis was 78 cents.

“There is little driving consumer spending other than staples,” Michael Niemira, chief economist of the International Council of Shopping Centers, said in a July 1 statement.

As rebate-check spending ebbs in the second half, economic stability will depend at least in part on banks, according to Ghriskey.

“Do banks begin to lend more, take the chains off their lending practices to help the economy begin to grow again?” he said. “We’re not looking for a huge amount of economic strength in the second half, but we are looking for stability.”