Turmoil May Make Americans Savers, Worsening `Nasty' Recession

``If we did have a quick cut in spending, it could turn a pretty nasty recession into possibly the worst downturn we've seen in the postwar period,'' says Michael Feroli, a former Federal Reserve official now at JPMorgan Chase & Co. in New York. Even without a collapse of consumer spending, Feroli expects the economy to contract by 2 percent in both this quarter and the next.

Nosedive

That may be about to change as wealth and credit evaporate. Household net worth, as measured by the Fed, fell $2 trillion in the second quarter from a year earlier -- and that was before the stock market's nosedive wiped about $3.9 trillion off investors' portfolios in the past month and a half.

Credit is also harder to get. Borrowing by U.S. consumers fell in August by $7.9 billion, the most since statistics began in 1943, to $2.58 trillion as lenders curbed access to loans, according to Fed data.

Add to that a cyclical rise in the unemployment rate -- it already stands at a five-year high of 6.1 percent and could increase to 9 percent, according to Microsoft Corp. co-founder Bill Gates -- and it is no wonder households are retrenching.