Consumer Debt

[grumpy]

Green Shoots or Smoking Weed?

In December 2006, only a few
months after the peak of the housing bull market, the total value of US
residential property stood at $21.9 trillion. Prices have dropped by 31%
since the end of 2006, so the estimated value today is about $15
trillion; however, the mortgage debt remains more or less unchanged
and stands at $10.6 trillion. In other words, whereas debt-to-equity in
the US housing market was 48% as recently as in December 2006, it is
now 70% and will rise to 80% once house prices have mean-reverted.

Although painful, a rise in debt-to-equity of that magnitude would
actually be manageable if it weren’t for the fact that income and wealth
in the US is extremely skewed. The top 1% of income earners in the US
account for a whopping 23% of national income while the median
household has seen no improvement in income for the past ten years
(see chart 1). Wealth is even more unevenly distributed. Almost 34% of
all wealth in the US is held by the wealthiest 1% of the US population.

The same picture emerges when you look at home ownership. Almost
one-third of all US households have no mortgage. If you adjust for that,
the 70-80% debt-to-equity ratio suddenly becomes a major challenge
because it means that the two-thirds who do have a mortgage already
face a debt-to-equity ratio in excess of 100%. Even worse, once the
mean reversion has run its course, two-thirds of US households will be
facing a debt-to-equity ratio of 120-125% on average.

…

There is plenty of schadenfreude to detect here in Europe. Yet most of
those people who argue that the American consumer has dug his own
grave by acting so “irresponsibly” fail to understand that it is precisely
the over-consumption in America which has driven the global economy
to the lofty levels we have all come to like and enjoy. Without
Americans being prepared to spend their last dime, there would have
been no BRIC fairy tale and there would have been no German export
boom, masking the fact that the domestic German economy has been
on life support for a number of years now.

It is therefore an inescapable fact that with two of the largest
consumer-driven economies in the world heading for a protracted
slowdown, the global economy will take much longer to recover than
most people realise, unless other countries such as Germany wake up
and realise that their high savings ratio is as much part of the problem
as the American and British über-spending. However, to persuade Mr.
and Mrs. Schmidt to adopt Anglo-Saxon spending habits is a tall order

• in particular when the problem is not recognised by supposedly
  intelligent people such as Angela Merkel, the German Chancellor. I
  could hardly believe my eyes and ears when, during the recent G20
  summit in London, she declared that the German growth model would
  continue to be based on exports. To whom may I ask?

arpllp.com/core_files/The%20 … 200609.pdf

So, we are broke, they are broke. What the fuck is the outcome of all this?

[wii4miinow]

I’lll tell you what the outcome is.

The outcome is that the majority of the worlds persons are of the type live for the moment, borrow today and spend today and hope to pay back never since tomorrow never comes. The governments of the developed world are a reflection of this mindset and are only too glad to have their backs massaged by their banking partners blind to the banks increasing dominance of financial control and usery of the populaces.

The outcome in the medium term appears to be that the indebted persons will be benefited by massive printing of money - that’s how best to describe it. (Quantitative Easing is akin to saying I won it on the horses when actualy one of my developer cronies gave me the dough).
The prudent will suffer. Their savings gathered and secured during the last 10 years are to be washed away by rising inflation.

I’ve mentioned bubble 3 here on the Pin a few times over the past few months.
Bubble 3 is just around the corner.

Property prices will very very slowly decline but there won’t be any huge price drops since
a. the banks won’t instigate forced sales since there’s no one to buy the propertiies anyhow
b. the valuations on forced sales would force the banks to own up to massive undercapitalization that they are already working hard with their governments to deny
c. all the savings combined can never pay off the debt anyway.

I’m on the verge of pushing myself to cautiously go ahead and make a buying decision over the next few months. I do agree that prices will bottom not now but later but essentially I don’t believe that the outcome will be any good for me if I save (at 3% and inflation is runing at 10% in real terms)…

Ultimately:

BORROWERS AND THE INDEBTED WIN.

savers and the prudent loose.

Load up those willing horses. Yee Haw!!

[fishfoodie]

I almost totally agree, except for one very important point.

You should have said:

the majority of the 1st worlds persons

China & India haven’t had either the opportunity or inclination to join in the madness; thanks be to God. As a result, they are now the best chance of recovery.

Sad isn’t it; only by corrupting their better inclinations can we hope to drag the rest of the planet out of recession

[grumpy]

BOSTON (Dow Jones)–Rising unemployment is increasingly pushing strapped U.S. borrowers over the edge, with delinquencies on home-equity loans reaching a record, and balances on delinquent credit cards surging, according to the American Bankers Association.

Delinquencies on consumer debt, including auto loans, rose to 3.23% in the first quarter, up from 3.22% in the earlier quarter. During the same period, unpaid balances on these consumer loans jumped to 3.35% from 3.16%, noted the report published Tuesday by ABA, an industry trade group.

…

In the first quarter, delinquencies on bank-issued credit cards rose to 4.75% compared with 4.52% in the previous quarter, according to the report. Moreover, the balances on those delinquent credit-card accounts jumped 1.08 percentage points to a record 6.60% of total credit-card debt.

The report defines consumer delinquencies as borrowers who are at least 30 days behind on payments on debt ranging from credit cards and auto loans to mortgages.

Delinquencies for home equity loans reached record highs, rising to 3.52% in the first quarter.

voices.washingtonpost.com/econom … s-col-blog