Attack of the Zombie…consumers

Arms akimbo, they walk through shopping malls with credit cards close at hand and froth coming out of their mouth in anticipation of the feeding frenzy. They’re more likely to feed on a no holds barred sale than human brains though, so you have nothing to worry about.

At least for now.

These zombies are not the kind you’ve grown to love (or loathe) in the movies though. The ones spawned by Hollywood moguls are more intent on carnage and just being dangerous in their own lumbering way. Conversely, economic zombies are the kind that are more passive and almost pass under the radar, but the damage that they do cause is in terms of tying up capital. This was best witnessed in Japan in the early ‘90s and the parallels to present-day America cannot be ignored. The real estate market went belly up over in the Land of the Rising Sun, and this led to deflation and a concurrent drop in the standard of living. But wait, there’s more! Hand in hand with these zombie consumers were zombie banks that drifted mindlessly (!!!) along without paying attention to their losses. And so as time dragged on and the losses mounted, these zombie banks ate a large chunk of capital out of the Japanese economy.

That’s just as bad as zombies that eat brains, maybe even worse.

The White House has probably already taken cognizance of the issue and has kept a close check on the banking institutions of America, closing down those that are insolvent at a steady pace while pumping funds into some at the height of the crisis. But while the government can get tough on banks, what about homeowners? If a homeowner default on a payment or is barely staying afloat in a sea of mortgage, what can be done about them? And did Capitol Hill even see this problem coming up, if at all? With an economy now riddled with debt-laden consumers wary to buy, it makes it so much harder to right the situation and the problem is a lot of these consumers will default on their debt. Progress is slow and tedious, and it’s almost a case of one step forward and two steps back.

Washington has, to their credit, tried to breathe life into an almost moribund cause by pushing mortgage rates down and offering subsidies but the real estate situation is le enfant terrible of the American economy and its crying out for more attention and loving care no matter how much it gets. Some say the situation is so precarious as to be the precursor to a double-dip. About 8 millions home have been foreclosed since the recession set in, and that leaves some erstwhile homeowners with cash to spend, but a credit history that has been shot to pieces. These people aren’t spending much money any time soon, and not the way they might have normally, if at all. And so these consumers are stuck in a limbo where their financial situation is alright but they do have some woes of them.

And what of the remaining homeowners that struggle to make their payments each month? Many fumble along in arrears, not in debt and not really solvent. Approximately 13 million homes are owned by those that are paying more money than their home is actually worth, and no one is getting the fact that there are losses being had. Washington’s initiatives have helped modify things, but it hasn’t affected the principal payment owed and so these houses too will be lost, eventually. And so we have the zombies, who are neither heroes nor zeroes. They don’t spend as much as they might have previously, but they’re wealthier than the median and they’re not spending their remaining wealth, they’re saving it.

That’s all very fantastic until you realize there are hardly any spenders and tons of savers. That means less of a climate for businesses to thrive and grow in and consequently reduced hiring. And so the plot thickens and the reel life plot becomes very real with no interval or end in sight. Someone needs to turn on the lights and show these zombies the light, but no one knows who or when that will happen.