"The US consumer is finally broke."

Why This Recession Will Be A Doozy

Why This Recession Will Be A Doozy

Henry Blodget | Oct 19, 08 10:22 AM

The last recession was mild. The stock market and corporate profits tanked, but consumer spending--long the major engine of the US economy--danced merrily on through. In recent decades, it has ever been thus: bearish analysts and strategists have been underestimating the voracious spending habits and resilience of the US consumer for 50 years.

Unfortunately, at risk of invoking the four most expensive words in the English language, "this time it's different."  This recession, to quote the great Julian Robertson, will be a "doozy."

Why?

Because the US consumer is finally broke.  For thirty years, we piled on debt and then spent almost every new penny we got.  This borrowing spree was made possible by a smorgasbord of no-money-down lending products and ever-appreciating asset prices. Unfortunately, the situation has now changed. The lenders who created those products have now been demolished, and asset prices are falling fast. And this is leaving American consumers with no choice but to cut back.