BELLINGHAM, WASH. — The mall is almost empty.

At the once-busy Bellis Fair mall in Bellingham, Wash., there are only a few customers browsing the aisles of the Target, Kohl's and Sears stores.

Outside the Bellis Fair Target store, the three members of the Baca family sit on a bench. “Can't really shop, no money,” says Stephanie Baca, a caregiver with a visiting nurse service, who holds her nine-month-old daughter Naomi on her lap.

Ms. Baca's husband Marlon, who works at a restaurant in the mall, sits next to her. Since they don't have money to spend, today's mall activity is “just walking around,” Ms. Baca says.

Lately, the couple has looked for ways to cut costs. “We just try to see where things are the cheapest. Anything – clothing, food, gas,” she says.

The fabled American consumer, driver of two-thirds of U.S. economic activity and de facto engine of the world's economy, is vanishing from the aisles of the nation's stores. Already reeling from the implosion of the country's housing market and the jobs shed by the slowing economy, the voracious U.S. consumer is now being choked by evaporating credit. The meltdown on Wall Street, which also has its roots in the housing debacle, is creating a lending lockdown between banks that is now turning off the spigot of cash to businesses and consumers.

Businesses are struggling to get credit, with short-term markets seized up as interest rates soars and lenders hoard cash. The liquidity crisis took down Washington Mutual Inc. on Thursday night as its latest kill, the biggest bank failure in U.S. history. Consumers are feeling the pinch as lenders tighten credit card limits and home equity lines of credit, and toughen mortgages and student loan requirements.

Even if the cash were available, it's not clear consumers are in the mood to spend. Once so hungry to borrow and spend, an ever-more fearful consumer now looks poised to retreat further from the malls and bars, pinching pennies. The growth in credit has slowed substantially, with car and home loans already all but stagnant, and is teetering at the edge of a decline, which would be a first since 1992.

“There's no doubt the consumer has downshifted, and part of the reason is they're borrowing at a slower rate – but make no mistake, they're still borrowing,” said James Paulsen, chief investment strategist at Wells Capital Management.

The credit crisis has created a greater change, one sharply away from the free and flagrant-spending days of recent years. “That one is attitudinal,” Mr. Paulsen said of the change. “Among consumers. Among lenders. Among everyone. It's a cultural thing that will take, at a minimum, a couple years to rebuild – if not longer.”

The apparently waning appetite of American consumers is among the greatest risks facing the U.S. economy – with major potential reverberations in Canada and around the world. With so many exports going south, from auto parts to oil to lumber for houses, a U.S. recession means hard times if not worse for Canada.

Cash register-shy consumers could undermine the massive $700-billion (U.S.) bailout that is being negotiated in the nation's capital to quarantine bad bank debt and prod banks back into the lending business.

The government bailout is all about rebuilding shattered confidence, to slowly soak up the disastrous lending decisions of this decade that have unfolded in spectacular ways and are on the verge of ramming the world's most powerful economy in to the ground. It's about believing the money can keep moving.

Malled

The fortunes of the Bellis Fair mall rose with those of hungry American customers.

The mall opened in August, 1988, located on Interstate 5 north of Bellingham. The mall's development was a huge local controversy, with opponents fearing the gutting of the quaint city's downtown and proponents saying Bellis Fair was the key to salvaging the local economy.

It did. The large mall – in a city of 100,000, it is almost half the size of Toronto's Eaton Centre – draws visitors from a much wider area, 13 million in all annually, which includes upwards of three million Canadians on cross-border shopping jaunts.

A lot of that shopping was financed by credit.

Since the late 1990s, the personal savings rate in the U.S. has plunged to almost zero from 3 per cent of income, according to figures from the Federal Reserve and research by Innovest Strategic Value Advisors Inc. Meanwhile, the amount of disposable income going to service credit card, mortgage and other debt has risen steadily. Real wages haven't risen much, but credit card debt is up 80 per cent.

Bellis Fair is owned by General Growth Properties Inc. of Chicago, a firm founded in Iowa five decades earlier by Matthew Bucksbaum and his brother Martin, and is currently run by Matthew's son, CEO John Bucksbaum. The family owns about 9 per cent of the company and in 2000, during the good times, the family foundation created the Bucksbaum Award, $100,000 handed out every two years to a visual artist, the richest such prize in the world.

As consumer spending climbed, General Growth, which owns more than 200 malls across the country, renovated Bellis Fair in 2003, right at the same time house prices were shooting higher. Consumers pulled equity out of their homes, borrowing to fill those houses with the wares sold at the Macy's, Target and other Bellis Fair stores.

Just last summer, sales were up as much as 20 per cent from a year earlier, mall manager Dennis Curtis said at the time. Now, much like Wall Street, Bellis Fair is up against the wall. Its owner is also being hammered. With almost $20-billion of debt coming due over the next three years, concerns have mounted about the company's ability to refinance, and its shares have been pummelled, falling more than 50 per cent since June. On Monday, the company said it is considering asset sales or a merger because it can't refinance its debt on affordable terms.

Empty Bellis Fair and its struggling owner are not alone. U.S. stores are looking at the weakest holiday shopping season since 2002, according to the National Retail Federation. Neiman Marcus, the high-end U.S. retailer, said this week that the “months ahead will be difficult.”

Credit crunched

With banks pulling back on lending, credit is quickly becoming less available to consumers.

American Express Co., for instance, is lowering credit limits at twice its normal rate. Even in good times, the company constantly monitors how much credit is available to cardholders, with an eye to increasing limits for good customers or cutting back to reduce risk of default on less reliable accounts. In a typical year, Amex will change the credit limit for one out of five of its customers, with most of those changes being increases. About 4 per cent of borrowers see their credit cut in a normal year.

Starting in summer 2007, as the subprime mortgage debacle emerged, Amex began to retrench, gradually tightening its lending. Now, Amex is lowering the credit limit for 10 per cent of its customers, said Kimberly Forde, a company spokeswoman.

Amex looks for obvious signs of potential distress, such as whether a person has a subprime mortgage, or lives in Los Angeles or Miami, two markets where housing prices have been decimated in the past year, Ms. Forde said.

Still, credit card debt continues to growth. Revolving loans – credit card debt – grew at an annualized rate of nearly 5 per cent in July, according to the Federal Reserve, a rate lower than the average for the years 2006 and 2007 but higher than in 2004 and 2005.

Loans for cars and home equity borrowing are freezing up faster. These so-called non-revolving loans grew only at a 0.5-per-cent rate in July compared with steady growth of around 5 per cent as recently as the spring.

Total consumer credit in the U.S. stands at nearly $2.6-trillion and is near its first decline since 1992, the end of three difficult years that were also marked by widespread financial trauma. Consumer credit growth in July was 2.1 per cent, down sharply from 5.1 per cent in June and less than a third of the 7.5-per-cent growth in recorded in late year's July-September period.

Every kind of credit is getting crunched. The Student Loan Network, a U.S. information service, said more than 30 lenders have cut off loans to students since mid-2007 and added that it is “virtually impossible” to get a student loan without a co-signer.

Many smaller banks may further pare back lending because of the effective nationalization of Fannie Mae and Freddie Mac. Small banks invested in shares of those two mortgage giants because they were, in theory, safe and steady investments that delivered reliable dividends. But those dividends have been halted – which according to the American Bankers Association, will suck more than $100-billion away from the mostly small banks, reducing their cash flow and ability to lend money.

While lenders are tightening up, money previously lent is not getting paid back. Foreclosures are escalating and, on Thursday, Discover Financial Services, the No. 4 credit card company, said its loan-loss provision surged 80 per cent in the quarter ended Aug. 31.

TransUnion, a credit tracking agency, said this week that the number of U.S. auto loans that were past due more than 60 days rose 11.5 per cent in the second quarter from a year earlier, adding that the “availability of home equity for financing auto purchases has diminished significantly.” And the number of Americans past due more than 90 days on one or more of their credit cards rose 14.3 per cent as average card debt per borrower ticked up past $1,700.

Consumers raise white flag

Signs of the squeeze on consumers are littered across the landscape. Measures such as the Consumer Comfort Index are near a record low, suggesting Americans are uncharacteristically depressed about their economic prospects. Conducted since 1985, the comfort index's previous record low was set in the early 1990s recession; a new low was reached in May at minus-51.

Those surveyed are asked three straightforward questions about the state of the economy, their personal finances and whether today is a good time to buy things they want and need. Readings of minus-49 and minus-50 were recorded in August and while the measure ticked up to minus-41 last week and the week before, sentiment is still severely negative

The vise gripping the consumer is being tightened by an array of economic problems. The number of Americans filing for initial unemployment claims is at a seven-year high. Expensive gasoline keeps gobbling up available dollars and has reduced demand for the fuel every week since the spring. Gas sales are down 8 per cent from a year ago.

Housing, the root of the contagion, remains moribund. Sales of existing homes, reported this week, are still flatlining. New homes sales continue to plummet, falling 11.5 per cent in August – to the slowest rate since the hard recession of the early 1990s. On Friday, KB Home, one of the largest home builders in the U.S., said its quarterly loss quadrupled from a year earlier and noted half of its home buyers backed out of contracts.

And mortgage rates are still going up. Freddie Mac on Thursday said the rate on a 30-year fixed mortgage rose to 6.09 per cent this week, lower than 6.42 per cent a year ago, but higher than 5.78 per cent last week – with the rise in rates erasing about half the decline in the weeks since the government's effective takeover of the agency and Fannie Mae.

The jump in mortgage rates this week is another tangible sign of tighter credit, said David Rosenberg, economist at Merrill Lynch. “As a result, we expect little rebound in home sales activity. We continue to believe that the bottom in housing is still at least a year away.”

Now, every penny counts

Battered by the bleak news from Wall Street and Washington, many Americans are frightened about the prospect of yet another blow.

“I don't know what's going to happen to the economy,” said Barbara Foster, after doing some banking at a Washington Mutual branch near Bellis Fair mall.

“It seems like it's going to collapse. I'm horrified. I haven't even looked at my retirement account, it's so scary.”

Ms. Foster, who has held health care positions and is looking for work, is in full scrimp mode, where every expenditure, from whether to buy blueberries to even renting a movie is scrutinized. “We've been living on credit for so long, the government and the people, it's insane,” she said.

Near Bellis Fair, at the Slo Pitch pub and casino – open 24 hours a day – it's also pretty empty. “I'm cutting back on all and any extras,” said Mike Glick, a technology consultant, nursing a beer.

“Like gambling. I'd be playing pull tabs, I'm not doing that. And I took the bus here,” Mr. Glick said. He figures he's in good company. “Normally, this bar would be full. People are in conservation mode, to pay mortgages, rent, those basic bills. Just in the last six months, it's been a huge change.”

And Mr. Glick, who has closely followed the amazing implosion of Wall Street this month, has little faith the situation will turn around any time soon.

“I don't think we've seen the real depth of how far this'll go,” said Mr. Glick, in a ball cap, sweater and blue jeans, dismissing the rescue plan. “You have to be a real fool to believe that. This isn't going to be solved by Congress approving $700-billion.”