<<What's with you guys? When debt was going up, that was grounds for gloom-and-doom, now debt is going down, and that's grounds for gloom-and-doom, as well.>>
The consumer reigned it in only because he had no real choice. It's a bubble, just like when stocks started falling in March 2000...because no one could bring themselves to buy anymore. That the consumer is already dangerously overextended in debt is obvious. J4P could borrow more but is no longer willing. It's not because credit isn't being offerred, heck, credit card companies and mortgage lenders are literally everywhere...in e-main, on TV, in magazines, in junk mail. They MUST keep lending (because it's a bubble, and because when they slow down, measurements of deteriorating debt quality will skyrocket). This is the basis for Buffet's famous quote that "when the tide (economically speaking) goes out, we get to see who's been swimming without a bathing suit (ie, extending reckless credit). But thought they must keep lending, Joe DOESN'T have to keep borrowing. The inflection point is when Joe recognizes he's in trouble, and starts to reign it in.
Debt accumulation was bad for 5 years, and bulls would claim "it can go on forever". It can't and won't. Of course it was bad that they continued running the debts up into the second half of this year...they've been doing it to FUND CONSUMPTION and maintain an unsustainable lifestyle. The funding has come at the expense of home equity, savings and stock equity assets. Now that Joe/Jane4P finally realize it, their behavioral changes (less debt, less spending) will kick out the economy's last remaining prop.
I DON'T think it's wrong for each individual consumer who has scads of debt to his name to pull in his/her horns. That's the right thing to do. What's right for the consumer and what's good for the economy (and especially for the financial service industry, mortgage lenders and subprime lenders) are two far different things right now.
Regards
Patron |
