Commentary: The death of the consumer is greatly exaggerated

[kalian]

http://www.bankrate.com/brm/news/mortgages/20040127a1.asp

Consumer debt warnings are up everywhere. Bankruptcy is running at record levels. The subprime lending market is thriving. People are refinancing their credit card debt into their homes.

How can the economy survive this latest crisis?

The economy will survive just fine.

...more...

OK, lenders and other creditors really took Greenspan's words on debt
to heart. Its OK to be heavily in debt...hoorah! Spend what you
don't have...we'll just print out more money! :eyes:

[acmavm]

1. Who are these people kidding? Or how stupid do they think we are?

Personal bankruptcies are up, mortgage defaults are up, the number of unemployed is growing, wages are not increasing, and McDonald's and Burger King are now manufacturing jobs. But the economy is going to be just FINE DAMMIT!!!

Somehow this just doesn't ring right.

[Bamboo]

2. Negative Equity Applied to Loan Balance

I heard that two-thirds of car buyers happily pay full sticker price.With unlimited credit how do you figure out what a product should cost or obtain a fair price when there are credit gorged buyers willing to outbid you.The idea that people will find the best product for the best price is perverted and destabilized by easy credit which makes bubbles seem "just fine".National health care and increase in minimum wage are "too expensive" when nothing else seems that way.On the BBC I heard a host complain about high taxes but then the guest asked what the APR was on her credit card and she could not even guess.

[rapier]

3. notes

This is called whistling by the graveyard.

Admittedly as long as rates stay low, or go lower preferably, things credit wise, in total, can remain OK.

It should be noted that it now takes somewhere between, and sorry for the vaugeness, $3 to $5 of debt to generate $1 in GDP growth. I don't think one has to be a Phd in economics to understand there is something wrong with this picture.

I will grant the mainstream, such as this guy, that total debt to GDP levels are perhaps not at emergency levels. Maybe. However I challenge them to tell us that sometime in future that debt growth will have to stop, which is an obvious truth. After all total debt payments cannot exceed total GDP. That might be quite a way off and I don't have the statistics handy to say when, but as a general principal they must tell us how we are supposed to wean ourselves from depencence on debt.


In the past most debt went to bussiness to fund plant and equipment which provided income and growth. Those days are long gone. Consumer debt in particular does nothing to produce anything. It's CONSUMPTION for cripes sake. It does nothing to provide a way to produce income to pay it off unless it is the inflation in the value of a home. However ask yourself. Does the inflation of home prices produce anything?

Inflation of assets isn't wealth building. That goes double if the inflation is fueled by cheap and easy credit. It's all just a paper game.