Monday, January 12, 2004

Consumer debt update,

The WaPo reports on consumer debt joining the other news-sources writing articles on the topic. The new twist under consideration?

Robert D. Manning, a leading expert on the credit card industry, sees families as likely to come under even greater stress as interest rates -- currently near historic lows -- inevitably rise.

"That's one of the trends that's really going to kill the American consumer in the next downturn," he says. "It's just impossible to keep these interest rates this low for much longer."

Yes, that's right. Consumer debt has risen throughout the recent recession as families borrow to stay afloat. Now that the economy shows signs of recovering, but with wages flat and people actually giving up looking for work, then we could have a scenario with rising interest rates but zero new disposible income. That's a recipe for bankruptcies that will leave families with nothing.

Mortgage refinancings put cash in the pocketbooks of Americans, but since the debt was rarely paid down this meant stripping the assets of the house. Home buying is still considered the single largest investment most American families will make. When the creditors come baying families will have nothing left and be put out on the streets. Now thanks to our great President and his Republican controlled Congress who have made it harder to declare bankruptcy families may not even have the slim protection of bankruptcy. It's good enough for the big boys like Enron and Worldcom-MCI but not good enough for Mom and Pop. That's what the Republican leaders on the hill have said!

The response of economists working for credit card companies?

Dan Laufenberg, Chief US Economist at American Express Financial Advisors in

"But the unemployment rate was equally shocking in the other direction.
Some people will make a big case about how it fell (because 309,000 people
left the labor force), but I would argue that in the unemployment rate it's
less important how you get there and more important where you are, and 5.7%
is pretty good."

So according to them, a low unemployment rate is good even if it's only low because people can't find any work at all and run out of un-employment. Hmmmm ... what's the problem with this picture? Talk about being out of touch!!!


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