Aftershock: Protect Yourself and Profit In The Next Global Financial Meltdown, Second Edition

Pop Goes the Discretionary Spending Bubble

A disproportionately large share of the U.S. economy is “discretionary spending,” meaning a good deal of what people have been buying in this country has been optional. Easy money from a rising multibubble economy made big-time discretionary spending possible and fun. Abundant high-limit credit cards and plenty of home equity loans fed the buying party at every income level, from luxury jet-set buyers to everyday Walmart consumers.

Now, with a popping housing bubble and high unemployment, credit is getting harder and harder to come by. In fact, home equity withdrawals declined rapidly from their peak of $144 billion in the second quarter of 2006 to $7.2 billion in the fourth quarter of 2008 according to the latest information from the Federal Reserve. Undoubtedly, no net home equity withdrawals have occurred since the fourth quarter of 2008. That’s a big pop!

As an incredible example of just how much money home equity withdrawal gave consumers, a study by Alan Greenspan and James Kennedy found that between 2001 and 2005 homeowners gained an average of $1 trillion per year in extra spending money! Now that’s a little extra in your pocket.

However, now Americans at every level are no longer rushing out to buy things they don’t really need at the same level they did before. Who’s going to run out and buy new granite countertops for their kitchen, for example, when they’ve lost their job or house? And even if you still have income and a home, ...