Overleveraged Consumer

Discussion in 'Economics' started by ShoeshineBoy, Nov 1, 2007.

  1. I'm surprised I don't read more commentary like below. How can we have an uptrend in the market with consumer spending so precarious due to heavy debt levels? Aren't the pundits worried about this at all? Whuh - is massive debt suddenly a good thing?!?


    "Further exacerbating the problem is a levered consumer.

    Surprisingly, the consumer has not deleveraged; he has become even more leveraged -- despite the housing mess. Over the past six years, more than $1.1 trillion in mortgage equity withdrawals have been made, representing 45% of the total increase in consumer spending (PCE) in that period. The trend in the first half of 2007 continued apace, with cash-outs equal to 50% of spending.
    The abrupt tightening in credit standards, wich began midyear as the subprime problem mounted, suggests that the housing ATM will not provide the injection of capital for the consumer over the balance of 2007 and into 2008-09.

    Household mortgage debt has risen by 135% ($10.1 trillion) over the last eight years. During that period, incomes have materially lagged, causing mortgage debt as a percentage of disposable personal income to rise from 64.5% in 1999 to over 100% in 2007. Shockingly, the ramp from 64.5% to 100% represents a rise greater than in the 45 years leading up to 1999.

    Total household debt, adding in credit card and installment debt to mortgage debt, looks as worrisome as it has risen (as a percentage of disposable personal income) from 93.5% in 1999 to 131.3% currently. "
  2. Global growth will compensate for any slowdown in consumer spendings
  3. Remember when we had no credit cards?
    Remember when gas was $1/gallon?
    Remember when you needed a job to buy a home?

    The world is aligned differently today.

    "Remember, remember, the fifth of November." :confused:
  4. ahhh heck....

    we is in fine shape....get rid of last year's 50 inch plasma and borrow some money and get a 100 inch plasma...

    it's the American way
  5. Arnie


    I wish I had a nickel for every story about how the American consumer is toast. :D
  6. How are the "Joneses" doing in your area? Anyone still have $$$ left to show off with elaborate external Halloween decoration?
  7. I admit it, I am over-leveraged too. In equity puts baby!!!!!

    Burn baby burn.
  8. Medium term, I agree...
  9. Debt is debt. Couldn't this be why the economy is slowing and today's ISM report is barely above contraction?

    I'm trying to be optimistic here, but I'm just not seeing the silver lining...