THE NEW YEAR has begun not with a quiet whimper, but with a very loud groan, emanating from Wall Street. Economists and analysts are rushing to revise their 2008 forecasts, and journalists are competing for page one placements with scary stories about evicted homeowners sleeping in the streets, and consumers filing for bankruptcy. Western singer Kris Kristofferson did not have fallen CEOs and other investment bankers in mind in mind when he sang about the man who “Once … had a future full of money, love, and dreams, which he spent like they was goin’ out of style,” but it is an apt description of many shell-shocked bankers and investors.
They have reason to worry. Oil finally hit $100 per barrel, sending share prices tumbling, gold prices soaring in anticipation of renewed inflation, and developing nations deeper into poverty. Food prices continue their upward trajectory and, combined with gasoline prices that are due to break new records, are reducing consumer discretionary-spending power to a mere shadow of its former self. Latest surveys suggest that even soaring exports will not keep the U.S. manufacturing sector from slowing down, with falling sales of autos a particular drag. So desperate are dealers to clear inventory-laden lots that one has taken out a magazine ad offering 12-year financing to anyone who thinks he can afford the gasoline guzzled by one of the Rolls Royces sitting on his lot. Most important, last month the unemployment rate soared from 4.7 percent to 5 percent, with more industries losing than gaining jobs.
