I'm looking a tipping points, rather than old economic data. Obviously no need to go into the size of the debt Bubble, so here's my case for a consumer lead recession, and very likely collapse. I don't think the Wizards have any room to cut rates now, and really no room to pause here unless they want to risk unleashing USD downside:
1. Nearly one trillion in HELOCs loans to be serviced. Each rate increase (tied to prime; usually 300 bps above Fed funds) adds $25 billion in expenses to Joe Sixpack. Tipping point now and worse on next rate hike to 2.75.
2. ARMs rate readjustments, from a bunch of 3/1, 1/1, and IO loans
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taken out in 1q, 2002 and 2004. These are tied to short term rates like LIBOR and CMT, not the ten year. The increases are on the order of 1.50-1.75% over last year, and as each month passes will hit more and more borrowers.
3. Inflation in essentials, not offset by wage gains. Just taking one, energy;
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4. I believe folks in high tax, and Bubble states, will be increasingly hit by the AMT, which is a defacto hidden tax increase. No slack for relief because of budgetary constraints.
5. As deliquencies, defaults start to pick up, lending institutions will tighten standards and choke off marginal types (plenty), if they aren't already. Margin and spreads are too squeezed for the risk. As home prices downtick, the fraud in appraisals will abate removing more "borrow to escape" prospects. Remove the spiked punch and houses simply are not affordable:
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6. And I could easily go on. |
