Good analysis summary on a significant part of the situation current in the US internal consumer economy with associated credit conditions.

In general I have no dissagreement with it.

However, one aspect of the Economy there should remain relatively strong and work to some extent at offsetting the above described conditions. That has to do with Exports and Imports. The US exports significant amounts of high value added technical services and products. Thus this area remaining strong. Also, with the tightening of purchasing power, the average consumer will have to reduce discressionary spending and focus more exclusively on the staples. This, in part will help with internally induced inflation. Thus, locally produced consumer staples should hold up and discressionary (significantly - imported) goods will take the brunt of the reduced consumer spending. Along with each of these (exporte and imports) the lower Dollar will enhance the effect of each.

Also to be considered is the fact that the Consumers adversely affected the most will be those in generally low paying retail jobs, and those who qualified for House Mortages inspite of the clear inability to later suppeot the mortage payments. These individuals, for the most part, already had little in the way of savings and thus had little at stake to loose once they run to the end of the easy credit conditions. They lived well or at least better for a while.

Also, given the current flight to Cash (money market) and Bonds (with the effect of ever lowering return/effective interest rate) by many with savings/investments and continued pressure by Bond Fund Managers to have the Fed Bank Rate lowered (and over the comming months lowered significantly more), the Fed will be more confident that lowering the Bank Rate will not have as big an impact on inflationary pressure. With more money in lower interest earning securties more individuals with savings (bond/money market) and low return investments (plus investment in the banking sector) will soon seek better rates of return.

Now for a relevant insert: Where will the better returns come from - High value added Producers and Product Developers - Technology Developers and Mineral Explorers!!!

These off setting factors may be not enough to prevent a major slow down but in combination with Monatery and Fiscal policy adjustments can go some distance toward preventing, or limiting the extent (Degree and Duration), of any pending Recession.

Both the US Fed and Government can make adjustments to limit the ill effects from becoming wide spread. It appears the Fed is working to that end. Not so sure about the Government. It also appears that, if not all other Central Banks, then at least many of the more significant Central Banks, are taking steps to help reduce the spill over effect into other Economies, and where possible be of some assistance to the US Fed.

Old Joe