Many Australian financial market commentators spent a large part of 2007 either ignoring the economic reality of just how bad things were getting in the US economy in 2007 or stating that it doesn’t matter because China is the answer to everything.

Watch out for a sudden rush of bearish notes in 1Q 2008, as both these views turn out to be wrong.

The US consumer, who accounts for between 15-17% of Global GDP is officially dead. How do we know this? Well take a look at two US retailers who represent different parts of the retail spectrum and whose forward commentary on the US consumer last week was bleak at best.

Last Thursday, Men’s Warehouse, which “is one of North America’s largest specialty retailers of men’s apparel with 1,269 stores” fell almost 30% as it lowered earnings guidance and gave depressing commentary on the trading outlook.

On Friday, Tiffany’s stock fell 11% as the company slightly lowered guidance. What concerned the market the most however were the comments on the US consumer. The CEO refused to be drawn on a 2008 estimate because of “uncertainty about near-term trends in U.S. consumer spending.” There’s an understatement for you.

When married sales managers in Utah and Jimmy Choo wearing PR types from the Upper East Side both stop spending money, then you know the US consumer is officially dead.

For those who believe that this still means nothing for China and therefore nothing for Australia, consider that it is estimated that Wal Mart is China’s eight largest trading partners.

Throw in all the other hundreds, thousands of US companies who buy Chinese products and you’re looking at an impact on China. Ironically this may all end up actually being good news for the Chinese government given their concerns about runaway growth and inflation in the country.