Recession or not, American families will be forced to tighten their belts
It's been a glorious run for the consumer. In the past 25 years, Americans have kept shopping through good times and bad. In every quarter except one since 1981, consumer spending rose over the previous year, adjusted for inflation. The exception was the first quarter of 1991, and even then the decrease was a mild 0.4% dip.
The main fuel for the spending was easy access to credit. Banks and other financial institutions were willing to lend households ever increasing amounts of money. Any particular individual might default, but in the aggregate, loans to consumers were viewed as low-risk and profitable.................
While many companies struggled in the 2001 recession and afterward, American consumers just kept borrowing. "In 2001-02, the credit window was open for anyone who had a pulse," says Merrill's Rosenberg.........................................
But executives from Capital One Financial, Bank of America, Discover Card, Washington Mutual, and others have told investors in recent conference calls that they are using more caution in extending credit. Chief Financial Officer Gary L. Perlin of Capital One, the nation's No. 5 card issuer, says he believes last year's historically low defaults by credit-card holders were partly driven by the real estate boom, particularly in previously hot housing markets such as Arizona, California, and Florida. Those benefits also have seemed to run out. As a result, says Perlin, Capital One is tightening lending standards and limiting credit lines.
The slide from grace is really more like gliding
And I've found the trick is not to stop the sliding
But to find a graceful way of staying slid
