US consumer debt falls for the 1st time ever: CNN Money

Have the smelling salts handy. US consumers reduced their household debt by an annualised 0.8% in Q3 - the first fall recorded since records began. However, of course the rub is that it indicates that the consumer is cutting spending and further to the economic gloom as consumer spending is 70% of the US economy.
money.cnn.com/2008/12/11/news/ec … 2008121113

My God,what next?They might start saving :open_mouth: :open_mouth: :open_mouth:

If US consumers continue to retreat from debt, which one would think is a very realistic proposition as they lose jobs and confidence at a staggering rate, then we are all toast, I have up to this point been hoping for a turnaround within the next 4-8 months, i.e. by Q3 2009 at the latest but am coming around to the distinct possibility of a depression lasting 5 years. No doubt some of the reduction in household debt in the US is related to credit tightening by the banks such that consumers could not proceed with purchases of houses, cars, etc. but it seems just as much or more is related to consumers deciding to save or reduce debt rather than purchase.
Per the article, household debt is still 13.91 trillion versus total net worth of 56.5 trillion or almost 25% of total net worth. The 80/20 rule would tell us that the 20% who own 80% of the net worth are likely close to debt free so owners of 20% of the net worth hold at least 80% of the debt, i.e. 80% of consumers are in debt above 100% of their net worth.
This looks uglier everyday and it is going to take one hell of a stimulus to get the consumer confident again, more likely any stimulus will only serve at best to avoid total disaster and the depression could go on for years. If it does, expect all kinds of protectionist measures, poltical upheaval, …

We have all lived off the US consumer for too long and they are wore out

If only they were repaying the debt rather than having it written-off.

i think there will be a painful adjustment while the rest of the world writes off their loans to the US and stops giving away their goods. But over time the rest of the world will be a lot better off as they will no longer be carrying a huge US parasite on their backs. They will actually be paid for their goods with real money as opposed to dollars and and will be more discerning about who they lend their money to. China and Japan are looking at huge losses on theier Tbills. An expensive lesson they are unlikely to forget