The word credit comes from the Latin word credere. The English translation of credere means to trust or to believe. When the stock market is up people feel wealthy and they have faith in the future health of the economy (jobs, consulting, small business). That confidence leads to more spending, more credit lines, more cars, more conveniences and other non-essential stuff.
When the market tanks, people get fearful and panic – they stop believing in the stock market and future prospects. They cut back on non-essential spending because they are worried about their future earning potential. They no longer borrow money from the future.
Once these superfluous expenses have gone they realize that they can live without them, and they don’t bring them back. What are you going to cut that won’t come back?
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