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logo    Seven Deadly Sins Confronting the Consumer


Merrill Lynch's David Rosenberg has described seven threats to the economy, and most reports on these make them seem to be the fault of consumers; yet that really can't be true. Let's look at these threats:

1. Consumers hold $2.3 trillion in short term debt, and rising interest rates as a result of the Federal Reserves actions makes servicing this debt more expensive.

2. The cost of energy is consuming more than twenty percent of after tax income, the highest level in twenty-five years.

3. Credit regulators have doubled minimum credit card payments.

4. Household savings are almost nonexistent and are savings growth is sure to slow.

5. Consumer sentiment has sunk along with buying intentions.

6. Household debt is now a record percentage of disposable income.

7. The record imbalance in foreign trade, especially with China, will exert protectionist pressures on Congress.

So how can consumers be responsible for these threats?

Banks have been allowed to mass market easy credit which encourages indebtedness and reduces savings and has induced consumers to borrow by offering low minimum payment plans. At the same time, the government failed to force these banks to display the true cost of such borrowing and the almost impossible ability to pay off such debt using minimum payments. This item alone accounts for items 1, 3, 4, 5, and 6.

The manufacturing and service industries have off-shored their businesses and eliminated or reduced their domestic operations, the result of which is that Americans make little of what they buy and have little to export that others want to buy. This item accounts for item 7.

And, finally, at least some of the high cost of energy can be attributed to a misguided foreign policy, the design practices of the auto industry which refuses to design and market low mileage vehicles, and the greed of the oil industry.

No consumer could have done anything to protect himself from the last two of these, and given the intensity and duplicity of the marketing of easy credit, most consumers could not have done much about the first either.

So when the government or the press makes it seem that these seven threats are the result of misguided practices on the part of consumers, the blame is being put on entirely the wrong people. If the American economy is in jeopardy, it is because of misguided governmental and business practices and policies, and the consumer can do little about either.

And the irony of this is that although the consumer will suffer greatly, so will American business and America as a whole, for neither business nor the nation can prosper if consumption falters. Have we become lemmings rushing to the sea? Have we, just like all great nations in the past, destroyed ourselves from within? Only time will tell, but it certainly looks like it. (10/28/2005)