re: consumer debt:
You are right, but only if the assumptions and conditions you postulate hold true.
If increased consumer spending (above the rate of increase in incomes) comes solely from refinancing debt at lower fixed interest rates, then increased debt is not a problem. As long as consumers stay employed, and are confident they will keep their jobs, they will continue spending.
But...........
Many mortgage refis are cash-outs. Consumer spending from cash-out refis can only continue if mortgage rates continue to go down. Since they are already at 40-year lows, it's unlikely they can continue going down. If rates stop going down, that alone will mean less consumer spending.
Much debt is not fixed-rate. credit card debt, for instance, is exploding.
The "recovery" in the economy we are seeing, is profitless (because the continuing global overcapacity in many industries means nobody has any pricing power), and isn't creating any jobs, either. Yes, employment levels lags during recoveries. But, especially in manufacturing, we are still seeing lots of job losses. So unemploymnet levels may not have peaked yet. If people lose their jobs, or just get marginally more worried they might, then consumer spending will decline. |
