Actually, household debt is at its highest levels as a portion of disposable income in history. The only thing that will keep demand up is Greenspan's rate cuts, which may lead to a new round of home refinancing that will keep the economy chugging for a while longer until the excesses in the manufacturing sector are whittled away. Weak Global Economy. Europe and Japan are too weak to pull the world economy along, and Latin America and Asia are still financially fragile. Japan has been in a period of recession and stagnation for ten years.
Deflation is now the order of the day in Japan.
We see a continued weakness in the Euro even though the U.S. economy is in a real slowdown, indicating that the U.S. is still the engine of the world economy. The destruction of stock-market wealth will have a dramatic effect on consumer spending and capital investment. There is no doubt that stock prices drive spending patterns more than ever before with the CNBC culture we live in, despite the fact that most people are not invested in the market. Looming Credit Crunch. Real interest rates before Greenspan's latest tightening were a couple of points higher than they were on the eve of the 1991 recession.