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	Storm Clouds of Recession Gathering   (January 24, 2006) Here is the chart which presages a deep, prolonged recession. Why? For the simple reason that this chart shows homeowners have stopped borrowing against their homes. As this weblog and other sources have repeatedly revealed, wages have been flat, savings are below zero and yet consumer spending has been incredibly robust. So where have Joe and Suzie Citizen been getting all these hundreds of billions to blow? From re-financing their house, of course. As that humble abode has doubled or tripled in value, they've pulled out tens of thousands of dollars in equity to spend on "Keeping up with the Joneses" (or Wong's, Sanchez's, etc.). With the real estate bubble finally topping out, there's suddenly no more equity to borrow against; and with interest rates rising, the predictable result is: re-fi's are plummeting to zero. So where are people going to get another twenty grand to spend? Well, they're not. With the housing ATM closed, the consumer has nowhere to get more money: wages are flat, and his or her savings are negligible. With the consumer unable to borrow, they'll be unable to spend, which will cause the economy to contract (otherwise known as "recession"), Not only that, but as reported in Barrons, new regulations to tighten risky interest-only mortgages have finally been put in place, cutting off a heretofore rich source of suckers, oops, I mean mortgage borrowers. The standard line is that business will pony up the hundrds of billions in spending which the consumer can no longer manage, but this presumes business is good--and exactly how good can business be when the consumer has less money to spend? It also presumes business execs will be as stupid as consumers have been, i.e. spending like drunken sailors on shoreleave. Believe me, you don't start a business or rise to management by squandering capital on unnecessary spending (unless you worked your way up in Enron, HealthSouth, etc.). So the wish that businss will collectively replace the 2/3 of the economy which relies on the consumer spending freely is at best a wish, and at worst, a dangerous, misguided fantasy. * * * copyright © 2006 Charles Hugh Smith. All rights reserved in all media. I would be honored if you linked this wEssay to your site, or printed a copy for your own use. * * *
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