WSJ: Night of the Living Debt

[question everything]

The Wall Street Journal

January 4, 2006

LONG & SHORT
By JESSE EISINGER

Night of the Living Debt

Overextended Consumers Present A Serious Issue for the Economy, And How Will Retailers React?
January 4, 2006; Page C1

(snip)

In the U.S., we will have Zombie Consumers. George A. Romero's classic "Dawn of the Dead" anticipated this 30 years ago when he set his movie in a shopping mall. Zombies had returned to the mall after their deaths by instinct because, as one character explains, "it was an important place in their lives."

The biggest and most underrated development in the U.S. economy over the past year is that the personal-savings rate went negative. In other words, Americans spent more money than they made last year -- for the first time since, oh, the Great Depression. The average worker hasn't participated in the economic recovery. Inflation-adjusted hourly and weekly wages are still below where they were at the start of the recovery in November 2001, points out the Economic Policy Institute.

As we all know, people made up for this by borrowing more, primarily from their homes. As short-term rates rose, however, home-equity loans and low-cost mortgages became less attractive. Home prices seem to be stalling out. The consensus among economists is that consumer overextension isn't much to worry about. Their thinking: American consumers have never stopped spending before. Why should they now?

In a fashion, the consensus may turn out to be right. There doesn't need to be a consumer implosion any time soon. Companies may be able to delay any implosion. Corporations will take extreme measures to keep their patients alive. Rather than write off bad loans, financial companies will extend more credit, improve terms, lower interest-rate payments and try to offload troubled loans to the financial markets.


(snip)

Billions Served: The market is broken when it comes to CEO pay. Multiple studies show that CEO pay is not only rising faster than average salaries and much faster than inflation, but also that the rate of growth is accelerating. The only force that can stop out-of-control compensation: shareholders. Regulators don't have the ability and moral suasion ain't working.

(snip)


URL for this article:
http://online.wsj.com/article/SB113634454287637257.html (subscription)

[Wilms]

1. Wall Street Journal. heh. n/t

[question everything]

4. While the WSJ editorial is as rabid as can be

the rest of it is quite informative

[Wilms]

5. I've been learning that. Thanks for the post. n/t

[wakeme2008]

2. Yipes the Wall Street Journal..... what more can I say nt

[Koeln]

3. not only the uS

has a household debt problem.

If you look at the statistics you will see that several countries have that problem.

The household debt in Australia UK netherlands and so on has increased sharply in the last years.

It is also interesting to see the connection between economic growth and household debt in the developed world. Countries like germany which faced a decreasing domestic demand and a sinking household debt compared to their income ( in a time with sinking wages and incomes in germany because of the high pressure from the world markets) showed no economic growth.

2/3 of the us economy is based on consumer spendings. the US economy would face a deep recession when the US consumer stop to increase their debt position compared to their income. They don´t have to pay it back just stop.

In the end we saw a debt party in the developed world and growth financed with the work of former generations and payed by future generations. Isn´t it good to live today