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mises
Joined: 05 Nov 2007
Location: retired
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 Posted: Sun Nov 02, 2008 5:10 pm Post subject: Broke Consumers Hit Credit Cards For A Few Last Pennies |
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Consumer spending plunged in Q3, and it's likely to continue to get worse. Why? Because U.S. consumers are broke, and the number of folks eager to lend us money despite this condition has gotten a lot smaller.
We were broke in 2000, but we were able to borrow money to spend by tapping the "equity" in our houses. Now we can't tap that equity anymore (because it's gone), so we've moved on to credit cards. Lenders are wising up to this, though. And then where's our spending money going to come from?
John Mauldin's weekly letter lays it all out (sign up here). First, check out the decline over the past two years in home mortgage equity withdrawals. That was a nice pot of spending money for a while. Not anymore:
Despite home equity withdrawals plunging in the last six quarters, though, until recently we did not cut spending much. We just switched creditors. Specifically, we switched from mortgage lenders to credit card companies (our emphasis):
So, did American consumers cut back on borrowing? Not if they had a credit card! Total loans from commercial banks to consumers grew by $89 billion for the 12 months ending in September. $61 billion of that was credit card debt, and the amount in recent weeks has exploded. Let's look at this analysis from my favorite slicer and dicer of numbers, data-wizard Greg Weldon (www.weldononline.com). Going with a Halloween theme:
"FAR MORE 'telling' is the LOPSIDED degree to which Credit Card balance growth is 'contributing' to total growth in Consumer Loans, a sign of intensifying 'stress' on consumers, amid accelerating job loss, home price deflation, and equity-market paper wealth devaluation.
"Even the raging Frankenstein stops to note the shockingly UGLY data details:
Commercial Banks, Outstanding Credit Card Balances ... SOARED by an eye-opening + $7.1 billion in the WEEK ending October 15th, representing a +1.9% single-week rate of expansion ... or ... nearly ONE-HUNDRED PERCENT annualized (+98.4%).
"Even more 'telling' is the 'read' acquired by contemplating the following pair of data FACTS:
* Credit Card Loans, 10 months Sep07-thru-Jul-08 ... up + $29.1 billion
* Credit Card Loans, 10 weeks Aug-08-to-mid-Oct-08 ... up + $32.3 billion
"In other words, Commercial Bank 'exposure' via the total amount of Credit Card 'loans' outstanding has risen MORE in the last ten WEEKS, than it did in the previous ten MONTHS COMBINED !!!
"Moreover, the growth in the last ten-weeks, $32.3 billion, or about $600 million per 'shopping day' since the beginning of August ... represents nominal growth of + 9.3% ... or ... + 48.3% annualized over the last ten weeks.
"According to American Express, delinquencies on credit payments rose to 4.1% of all credit outstanding in the 3Q, up from 2.5% in 3Q of 2007, with Bank of America's rate rising even more steeply, to 5.9% in the quarter.
"Moreover, the 'pool' of loans deemed 'uncollectable' rose to a high 6.7% in the 3Q, soaring from 3.6% last September."[Emphasis mine.]
What consumer spending there is has been fueled in part by credit card. Greg notes this uncomfortable piece of data: the second largest "merchant-vendor" for credit card use is now McDonalds. This suggests that many consumers are in serious distress when they need to get their $4 Big Mac and fries with a credit card.
Catch that? The second-largest credit-card vendor is now McDonalds.
Now, let's say you're a credit-card lender who has just watched all your friends in mortgage finance get fired after letting their credit standards go to hell. How long are you going to keep lending to consumers at this rate? And what's going to happen to consumer spending when you crack down? |
http://www.clusterstock.com/2008/11/broke-consumers-hit-credit-cards-for-a-few-last-pennies
We are in the eye of the credit storm. |
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Bigfeet
Joined: 29 May 2008
Location: Grrrrr.....
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| Posted: Sun Nov 02, 2008 10:25 pm Post subject: |
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| This won't last long either. Loaners are decreasing lines of credit, not increasing them like in the past. |
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Cornfed
Joined: 14 Mar 2008
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| Posted: Sun Nov 02, 2008 10:27 pm Post subject: |
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| I wonder whether we'll see people being sent to debtors' concentration camps in the near future. |
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Bigfeet
Joined: 29 May 2008
Location: Grrrrr.....
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| Posted: Sun Nov 02, 2008 10:36 pm Post subject: |
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| Cornfed wrote: |
| I wonder whether we'll see people being sent to debtors' concentration camps in the near future. |
Yeah, can you imagine if debtor's prisons were still in vogue? A whole lotta Americans would be in jail!  |
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Cornfed
Joined: 14 Mar 2008
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| Posted: Sun Nov 02, 2008 11:13 pm Post subject: |
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| Debtors' prisons are still in vouge for men who fail to pay vaginamony. However, with the current load of "deadbeats", most likely the camps will be marketed as charitable institutions that will look after them until they get back on their feet. |
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RJjr
Joined: 17 Aug 2006
Location: Turning on a Lamp
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| Posted: Mon Nov 03, 2008 12:13 am Post subject: |
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| Bigfeet wrote: |
| Cornfed wrote: |
| I wonder whether we'll see people being sent to debtors' concentration camps in the near future. |
Yeah, can you imagine if debtor's prisons were still in vogue? A whole lotta Americans would be in jail! |
Just lock the doors and put bars on the windows of the Capitol Building and the White House. That'll take care of the biggest debt junkies.
I just hope the Chinese don't enslave all of us when we default (and we will).  |
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Kuros
Joined: 27 Apr 2004
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| Posted: Mon Nov 03, 2008 5:38 am Post subject: |
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| RJjr wrote: |
I just hope the Chinese don't enslave all of us when we default (and we will). |
That's not how it works. |
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caniff
Joined: 03 Feb 2004
Location: All over the map
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| Posted: Mon Nov 03, 2008 5:50 am Post subject: |
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| RJjr wrote: |
| I just hope the Chinese don't enslave all of us when we default (and we will). |
They need us at least as much as we need them. |
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