oo, oo, mr beasley, SACK THE FED!!!
U.S. consumers lose faith in Fed, financial system
Fri Oct 10, 2008 9:48am EDT
NEW YORK (Reuters) - The credit crisis has shattered U.S. consumers' faith in financial institutions, including a stunning loss of confidence in the Federal Reserve, and that is likely to trigger the biggest drop in consumer spending in more than three decades and a deep recession, according to a survey released on Friday.
Fifty-seven percent of U.S. consumers surveyed reported having lower confidence now in the Fed than five years ago, including 29 percent who said they had "a lot less" confidence, the Reuters/University of Michigan Surveys of Consumers said.
Compare that with confidence in the Fed after the 1987 stock market crash. Then, after U.S. stocks fell more than 20 percent in a day, just 19 percent of consumers said they had less confidence in the U.S. central bank, including only 7 percent who said they had "a lot less" confidence.
Faith in banks, thrifts, brokers and mutual fund companies took hits across the board, the new report showed. Only credit unions were spared from consumers' fast-evaporating confidence in the financial system.
"This loss in confidence will cause consumers to accelerate their spending cutbacks and those reductions are likely to persist through most of 2009," survey director Richard Curtin wrote in the report. "These data indicate that a longer and deeper recession is now likely."
The loss of trust in the Fed comes as the U.S. central bank, working with the Treasury Department and other central banks around the world, scrambles to unclog key credit markets that provide the basic plumbing for the global economy.
So far, however, those efforts -- ranging from massive liquidity injections to the financial system, to a $700 billion bank rescue fund approved by the U.S. Congress, to coordinated global interest rate cuts -- have met with resounding votes of no confidence by investors.
Stock markets around the world have crashed through early October, and the U.S. market has now fallen for seven straight sessions, wiping out 21.8 percent of the value of the Standard & Poor's 500 index. That is the U.S. benchmark's worst stretch since the October 1987 crash, with more than $2.2 trillion in market capitalization wiped out since September 26, the last day U.S. stocks rose.
U.S. consumer spending is expected to decline through the first half of 2009, with total personal consumption expenditures falling by 0.5 percent in 2009 compared with 2008, the survey's director wrote.
Consumption has fallen in only two of the past 50 years -- in 1974 by 0.8 percent and in 1980 by 0.3 percent.
"In historical perspective, this is quite a negative outlook," Curtin said. "The longest period of decline in consumption during the past half century was four quarters, which the current downturn is expected to equal."
"To be sure, the current forecast is not comparable in any way to the depth or the length of the downturn from 1930 to 1933, when consumption spending fell on average by 4.9 percent per year for four years," Curtin said.
Among other survey findings, two-thirds of U.S. consumers see the credit crisis significantly hurting the economy, while one in five households expects a large negative impact on their personal finances.
Further, a majority of U.S. consumers have altered spending plans due to the crisis, with nearly one in three anticipating a substantial cutback.
Access to consumer credit for purchases is an increasing problem. Ten percent of households surveyed said they had problems obtaining credit during the past year.
"In response to questions about buying conditions for a wide variety of purchases, consumers much more frequently mentioned that tighter credit conditions was a cause to postpone purchases," Curtin wrote. This was in addition to growing uncertainty about future jobs and incomes.
(Editing by James Dalgleish)
http://www.reuters.com/article/newsOne/ ... 3320081010
