Post by unlawflcombatnt on Jan 1, 2008 4:46:24 GMT -6
from SignOnSandiego.com:
All I got for Christmas was a load of credit debt
December 30, 2007
By Dean Calbreath
"To ordinary people like you or me, the shoppers scurrying around the malls in places like Mission Valley and Grossmont are just normal everyday folk scavenging for after-Christmas bargains on clothing, gadgets and toys.
But to economists, these shoppers are true Titans, demigods of the global financial system, who – with the help of their checkbooks and credit cards – have been pulling the economy through rough waters with the ease of Gulliver towing the Lilliputian fleet.
Retail sales account for as much as 70 percent of the nation's gross domestic product, as calculated by the federal government.
When we open our wallets at the checkout stand, we are not just helping employ the college kids who have part-time jobs staffing the register. We are also paying the salaries of laborers at Malaysian textile mills, Mexican maquiladoras, Chinese electronics factories and Saudi oil wells (all that petroleum in our plastic products has to come from somewhere).
That's why the sluggish sales figures coming out of the malls this shopping season have caused so much consternation on Wall Street. A hiccup in the Great American Consumption Machine, the pundits say, could not only raise the specter of recession in this country but also an economic slowdown abroad.
But you have to question how much good it does for the economy in the long term if shoppers are only putting themselves further into debt to buy foreign-made trinkets they don't really need.
Nationwide, shoppers are financing their Christmas purchases by taking on greater debt. Even before the Christmas season, Americans' credit card debt had risen 7 percent over the past year to top $926 billion by October, according to the latest data from the Federal Reserve.
The problem is that we are increasingly having problems paying off our bills.
A study by the Associated Press last week found that delinquencies and defaults on credit card bills have skyrocketed over the past year. Between October 2006 and October 2007, delinquent accounts at 17 major credit card trusts, representing most of the nation's top credit card issuers, jumped 26 percent to $17.3 billion....
Because those 17 trusts represent only 45 percent of all outstanding credit card debt, the total number of delinquencies and defaults could conceivably be more than twice as high. And that was before shoppers started filling their bags with Christmas gifts.
In San Diego County, the rise in credit card debt has combined with ballooning mortgage payments to push a growing number of borrowers into bankruptcy.
During the first 11 months of the year, 6,972 San Diegans filed for bankruptcy, compared with 3,507 in the same period a year before.
Naturally, some of those bankruptcies have more to do with San Diego's shaky housing market than with mounting credit card bills. But these days, a borrower who is defaulting on a home loan is probably defaulting on a credit card or auto loan as well.
“Americans have simply borrowed more money then they can possibly repay,” said Peter Schiff, president of Euro Pacific Capital in Newport Beach.
Schiff said there is a link between mortgages, auto loans and credit cards. In the easy-money environment created by the Federal Reserve in the first half of the decade, lenders got sloppy about extending credit, sometimes enticing consumers with low “teaser” rates – just like the teasers on mortgages – offering low or no interest payments for up to 6 months. And when the nonteaser rates kicked in, consumers could easily take out a home equity loan to pay the bills.
Not any more.
“As defaults increase and losses mount, credit will tighten like a noose around the neck of America's consumer-based economy,” Schiff said. “Just as subprime home buyers are being shut out of the housing market, soon Americans will find that their credit is no longer good at car dealerships or department stores.”
It's a vicious cycle. The credit crunch could put a crimp on retail sales, which would further slow the economy. And an economic slowdown will push consumers to cut spending even further. That's why so many economists and Wall Street analysts are hoping consumers will keep their shopping bags full.
“To avoid recession, Americans are going to have to keep on spending,” said University of Maryland economist Peter Morici. “This will require borrowing at much higher rates on credit cards now that easy home mortgages are gone.”
However, mounting credit card defaults could soon put Visa and MasterCard into the same hot water that mortgagers such as Countrywide and Citicorp are in, Morici added.
There are growing signs that consumers are already nearing their limit....
“The consumer cannot remain so resilient indefinitely,” said Nigel Gault, an economist with the investment consulting firm Global Insight.
This could be one reason why retail sales during this holiday season have been disappointing....Target Stores, one of the nation's largest retailers, said its same-store sales might have actually declined by a percentage point or so...."
All I got for Christmas was a load of credit debt
December 30, 2007
By Dean Calbreath
"To ordinary people like you or me, the shoppers scurrying around the malls in places like Mission Valley and Grossmont are just normal everyday folk scavenging for after-Christmas bargains on clothing, gadgets and toys.
But to economists, these shoppers are true Titans, demigods of the global financial system, who – with the help of their checkbooks and credit cards – have been pulling the economy through rough waters with the ease of Gulliver towing the Lilliputian fleet.
Retail sales account for as much as 70 percent of the nation's gross domestic product, as calculated by the federal government.
When we open our wallets at the checkout stand, we are not just helping employ the college kids who have part-time jobs staffing the register. We are also paying the salaries of laborers at Malaysian textile mills, Mexican maquiladoras, Chinese electronics factories and Saudi oil wells (all that petroleum in our plastic products has to come from somewhere).
That's why the sluggish sales figures coming out of the malls this shopping season have caused so much consternation on Wall Street. A hiccup in the Great American Consumption Machine, the pundits say, could not only raise the specter of recession in this country but also an economic slowdown abroad.
But you have to question how much good it does for the economy in the long term if shoppers are only putting themselves further into debt to buy foreign-made trinkets they don't really need.
Nationwide, shoppers are financing their Christmas purchases by taking on greater debt. Even before the Christmas season, Americans' credit card debt had risen 7 percent over the past year to top $926 billion by October, according to the latest data from the Federal Reserve.
The problem is that we are increasingly having problems paying off our bills.
A study by the Associated Press last week found that delinquencies and defaults on credit card bills have skyrocketed over the past year. Between October 2006 and October 2007, delinquent accounts at 17 major credit card trusts, representing most of the nation's top credit card issuers, jumped 26 percent to $17.3 billion....
Because those 17 trusts represent only 45 percent of all outstanding credit card debt, the total number of delinquencies and defaults could conceivably be more than twice as high. And that was before shoppers started filling their bags with Christmas gifts.
In San Diego County, the rise in credit card debt has combined with ballooning mortgage payments to push a growing number of borrowers into bankruptcy.
During the first 11 months of the year, 6,972 San Diegans filed for bankruptcy, compared with 3,507 in the same period a year before.
Naturally, some of those bankruptcies have more to do with San Diego's shaky housing market than with mounting credit card bills. But these days, a borrower who is defaulting on a home loan is probably defaulting on a credit card or auto loan as well.
“Americans have simply borrowed more money then they can possibly repay,” said Peter Schiff, president of Euro Pacific Capital in Newport Beach.
Schiff said there is a link between mortgages, auto loans and credit cards. In the easy-money environment created by the Federal Reserve in the first half of the decade, lenders got sloppy about extending credit, sometimes enticing consumers with low “teaser” rates – just like the teasers on mortgages – offering low or no interest payments for up to 6 months. And when the nonteaser rates kicked in, consumers could easily take out a home equity loan to pay the bills.
Not any more.
“As defaults increase and losses mount, credit will tighten like a noose around the neck of America's consumer-based economy,” Schiff said. “Just as subprime home buyers are being shut out of the housing market, soon Americans will find that their credit is no longer good at car dealerships or department stores.”
It's a vicious cycle. The credit crunch could put a crimp on retail sales, which would further slow the economy. And an economic slowdown will push consumers to cut spending even further. That's why so many economists and Wall Street analysts are hoping consumers will keep their shopping bags full.
“To avoid recession, Americans are going to have to keep on spending,” said University of Maryland economist Peter Morici. “This will require borrowing at much higher rates on credit cards now that easy home mortgages are gone.”
However, mounting credit card defaults could soon put Visa and MasterCard into the same hot water that mortgagers such as Countrywide and Citicorp are in, Morici added.
There are growing signs that consumers are already nearing their limit....
“The consumer cannot remain so resilient indefinitely,” said Nigel Gault, an economist with the investment consulting firm Global Insight.
This could be one reason why retail sales during this holiday season have been disappointing....Target Stores, one of the nation's largest retailers, said its same-store sales might have actually declined by a percentage point or so...."