The United States has a consumer-based economy highly dependent on retail sales.  Most retailers and consumer products manufacturers rely disproportionately on the Holiday Season to survive and prosper.

As predicted in “The Affordable Mortgage Depression Manifesto” (11/3/08), Christmas 2008 was the catalyst which triggered widespread economic damage in the form of rapidly increasing unemployment. 

“Economic Pain Has Yet to Really Be Felt

The fourth quarter of 2008 and a disappointing Christmas season will likely be the events that trigger both real economic damage and a capitulation by many employers.  Disappointing retail sales will trigger widespread layoffs in the first quarter, and a steady and growing number of bankruptcies throughout the year.  Unemployment will increase dramatically during 2009.”

A material decline in consumer spending led to bankruptcies and mass layoffs.  The unemployment rate was 6.8% during November 2008.  Today, a year later, it stands at 10.0%.  The under-employment rate, which includes people who are marginally attached to jobs or working part-time due to economic reasons, has increased from 12.6% to 17.2% over the same period.  Both of these measures exclude individuals who have given up looking for work.

Manufacturing the Illusion of Recovery

The Government successfully created the impression of an economic recovery over the Summer with extraordinary monetary and fiscal intervention.  Politicians will continue to pretend that deficit-financed GDP gains signal an end to the Depression.  In reality GDP growth is a statistical manipulation of this flawed metric for measuring economic output. 

Higher deficits, stimulus spending, cash-for-clunkers, mortgage rate subsidies, housing tax credits and a trillion dollars of incremental money supply did nothing to resolve the underlying problems which continue to erode economic activity.

• Many houses are still overvalued and increasingly overleveraged
• Foreclosures are at record highs and rising
• ARMs will relentlessly reset triggering incremental foreclosures through 2012
• Housing prices continue to decline
• Unemployment will remain high and is likely to rise, reinforcing the preceding trends

Christmas Will Again be a Central Economic Catalyst

Those hoping for a beneficial shopping season are ignoring the simple reality of the employment situation.  The Holiday Season will further dispel the absurd notion of a Summer Recovery and again act as a catalyst refocusing attention on economic fundamentals.




The unemployment rate is 3.2% higher than a year ago.  The under-employment rate has increased by 4.6%.  Some number of people have become discouraged and quit looking for a job entirely.  How many Americans are employed but will earn less money in 2009 than in 2008?  What percentage of the work force has a job but is concerned about losing it?  This material percentage of consumers will rationally, or by necessity, spend less money during the Holiday Season.

Reality will again overwhelm the Government’s distortive intervention and refocus attention on meaningful economic conditions.  Politicians may continue to fiddle as the economy burns, claiming that deficit-financed GDP growth equates to sustainable prosperity, but I doubt the unemployed are going to buy the illusion of economic recovery for much longer.