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Oct 31 04:02 AM
While this is a very good article, there are two minor problems:
first is that, as is pointed out in another SA comment, consumption is NOT actually consumption, bcuz it includes Medicare & Medicaid transfer payments, which have increase above the rate of inflation for almost 3 decades. So, consumption has to increase by MORE than medical care inflation to be "real".
Second, deleveraging has not actually occurred. As other SA articles have pointed out, total credit card debt is down, but almost all the result of lender charge offs, and NOT due to paydowns by debtors.
As we took out home equity loans, some paid off higher interest credit card debt using our home appreciation. Many then ran their credit card debts back up, assuming that they could simply do it again.
There are two problems: one is that when we talk about "underwater" RE property, we often do not factor in home equity loan debts. So, that when we say that the current value of a home is less than the 1st mortgage, we missed something important - the 2nd & 3rd liens. Note, that when the lenders foreclose on the 1st lien, they might wipe out the 2nd lien; BUT, that does not eliminate the debt behind the 2nd lien. And, if you live in a deficiency state, even after the foreclosure you still owe for any deficiency - on the 1st lien.
Two, when we assumed that we could continue to do home equity loans to pay off our credit card & other consumer debts, we were wrong. Not only have our lines of credit been reduced, but home equity loans are now history.
For those of U.S. who have not used foreclosure and/or bankruptcy to eliminate our debts, the remaining debts are truly staggering - literally and figuratively.
Second, deleveraging has not actually occurred. As other SA articles have pointed out, total credit card debt is down, but almost all the result of lender charge offs, and NOT due to paydowns by debtors.
As we took out home equity loans, some paid off higher interest credit card debt using our home appreciation. Many then ran their credit card debts back up, assuming that they could simply do it again.
There are two problems: one is that when we talk about "underwater" RE property, we often do not factor in home equity loan debts. So, that when we say that the current value of a home is less than the 1st mortgage, we missed something important - the 2nd & 3rd liens. Note, that when the lenders foreclose on the 1st lien, they might wipe out the 2nd lien; BUT, that does not eliminate the debt behind the 2nd lien. And, if you live in a deficiency state, even after the foreclosure you still owe for any deficiency - on the 1st lien.
Two, when we assumed that we could continue to do home equity loans to pay off our credit card & other consumer debts, we were wrong. Not only have our lines of credit been reduced, but home equity loans are now history.
For those of U.S. who have not used foreclosure and/or bankruptcy to eliminate our debts, the remaining debts are truly staggering - literally and figuratively.
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Growth of U.S. Personal Consumption, Income and Household Liabilities
http://seekingalpha.com/article/233014-growth-of-u-s-personal-consumption-income-and-household-liabilities?source=email_the_macro_view
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