Parsad Posted November 29, 2011 Share Posted November 29, 2011 Consumer debt has fallen for 12 consecutive quarters. Daniel Gross writes a good article showing how consumers are, one way or another, tackling the accumulated excesses from the past. Cheers! http://tinyurl.com/6m2d4yw Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted November 29, 2011 Share Posted November 29, 2011 Except now, real income is down, savings are down, and spending is up--an unsustainable cocktail. Even in the article you site, they say delinquencies on all debt are rising. http://finance.yahoo.com/news/savings-rate-falls-lowest-since-190900173.html Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted November 29, 2011 Share Posted November 29, 2011 They really have to spin the data to make it positive: As we've discussed in other contexts, a big chunk of the decline in consumer credit is due to defaults and write-offs. But the Fed's data shows that, combined with some pay down activity, the rash of foreclosures and defaults has lead to some significant changes over time. Compared to the second quarter of 2008, there were 10.2 million fewer mortgages open in the third quarter of 2011. The number of credit card accounts open fell from 492.19 million in the third quarter of 2008 to 383.27 million in the third quarter, a decline of 22 percent. "Balances on those cards were nearly 20% below their 2008Q4 high," the New York Fed notes. I don't think it a positive that debt declines due to defaults and write-offs. Link to comment Share on other sites More sharing options...
Parsad Posted November 29, 2011 Author Share Posted November 29, 2011 Except now, real income is down, savings are down, and spending is up--an unsustainable cocktail. Even in the article you site, they say delinquencies on all debt are rising. http://finance.yahoo.com/news/savings-rate-falls-lowest-since-190900173.html They are still saving, just not at the pace immediately after the contraction. Low interest rates, combined with lower commodity prices, also suggest that pressure on the consumer has stabilized. Even in a low-interest rate environment, there is some stagflationary effect on the consumer due to higher taxes and frictional costs, but they are reducing their debt levels while increasing savings. If all the consumer did was save, then we would be facing greater headwinds like Japan with contraction in private sector job creation. Instead, we are facing the opposite situation...the private sector is hiring in droves. Not enough to fully impact unemployment yet, but it is getting better slowly. In regards to debt declining due to defaults and writeoffs, it doesn't matter. Whether the consumer pays or institutions pay, it comes out of the economy. Financial institutions have been conservative in their loan loss provisions. They have the capacity to absorb some of those loan losses with their balance sheets as strong as they are. The consumer is in more of a fragile state, as their greatest source of equity, their homes, have dropped 50% in value. If I had to choose whose debt load decreases at the moment, I would choose the consumers...be it through default, writeoffs, restructuring or payment. The sooner they deleverage, the better it is for the economy long-term, and in particular, for the housing market and housing related industries. Cheers! Link to comment Share on other sites More sharing options...
KFRCanuk Posted November 29, 2011 Share Posted November 29, 2011 I think things are going to get pretty brutal when interest rates rise and people can no longer take equity out of their home because they are either underwater or maxed out already at 80%(In Canada). Link to comment Share on other sites More sharing options...
ERICOPOLY Posted November 29, 2011 Share Posted November 29, 2011 Even in the article you site, they say delinquencies on all debt are rising. Things are getting better at some banks: Bank of America on Tuesday reported slight dips in the rates of default and late payments by its credit card customers for October. The rates for both measures for the Charlotte, N.C.-based bank's credit card division are at their lowest points since before the economic crisis began. http://finance.yahoo.com/news/bank-america-oct-defaults-payments-170615577.html Link to comment Share on other sites More sharing options...
Rabbitisrich Posted November 30, 2011 Share Posted November 30, 2011 Some of the disconnect between reported big bank results and the FRBNY data might be explained by the state level rollover and 90+ charts after page 19. The states that supported the highest volume of dumb loans and unsustainable real estate appreciation are showing continued improvement. Nevada is the major exception. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted November 30, 2011 Share Posted November 30, 2011 I don't think it a positive that debt declines due to defaults and write-offs. Why not? One might say that the banks are involuntarily pitching in to pull us out of this... essentially using their would-be profits to rid the common person of debts. The 99% should be very happy about this. Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted November 30, 2011 Share Posted November 30, 2011 Or one might say that individuals have lost a major amount of their net worth and now have a credit score that will prevent them from getting any sort of loan for a very long time. These people are broke. The road to a successful economy is not paved with bankruptcies. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted November 30, 2011 Share Posted November 30, 2011 Or one might say that individuals have lost a major amount of their net worth and now have a credit score that will prevent them from getting any sort of loan for a very long time. These people are broke. The road to a successful economy is not paved with bankruptcies. I thought we were both on the same page that these people were already in the position of not being able to borrow more. Link to comment Share on other sites More sharing options...
MrB Posted November 30, 2011 Share Posted November 30, 2011 http://www.cbsnews.com/video/watch/?id=7389750n&tag=contentMain;cbsCarousel The future for America is bright if this girl saves and invests and don't end up with an idiot for a fund manager, rather than consumes, look to her home as her main source of wealth and depends on her credit score to get her through life. The country's whole attitude has to change. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted December 3, 2011 Share Posted December 3, 2011 JP Morgan chart on page 9 shows "household debt service ratio as % of income" -- at nearly the lowest levels since 1980: http://files.shareholder.com/downloads/ONE/1550254602x0x515337/85746b44-384f-4eab-8c22-498b7d509acf/BAAB%20Conference%20Presentation%20Final_11.4.11.pdf Link to comment Share on other sites More sharing options...
ERICOPOLY Posted December 3, 2011 Share Posted December 3, 2011 The chart on page 10 shows the important role that charge-offs have played in consumer de-leveraging: http://files.shareholder.com/downloads/ONE/1550254602x0x515337/85746b44-384f-4eab-8c22-498b7d509acf/BAAB%20Conference%20Presentation%20Final_11.4.11.pdf Link to comment Share on other sites More sharing options...
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