Americans pushed to edge pay credit cards, not mortgages
10 Comments
This CNN story breaks my heart. This is the result of a free-wheeling printing press at the Federal Reserve that is destroying our purchasing power through high inflation, and our government's misguided attempt to disguise this inflation by allowing low-cost imports from countries where labor is so cheap that the workers cannot afford to buy our products. Destroying the dollar and unfair trade can no longer be hidden. Now, Americans are pushed to the edge and need credit cards just to pay the bills.
In another symptom of the subprime mortgage meltdown, stressed-out borrowers may be taking care of their credit card bills before making their mortgage payments.
According to a report from consumer credit reporting agency Experian, borrowers with credit scores of 620 or below are 30 days late more often with mortgage payments than with payments on bank-card debt.
Josh Rosner, managing director at financial research firm Graham Fisher & Co., said the data "highlights the level of distress among subprime borrowers and how close they are to the precipice. They need credit cards to make daily purchases, which takes priority over monthly payments like the mortgage."
A local economist told me that people would eat ramen before they would stop making mortgage payments, but it turns out all human behavior changes in the world of 0% financing, when you have no skin in the game. When they have lots of equity in the home, perhaps a mortgage payment is important. But with no equity, and falling wages and high inflation, it seems what people really need most, is access to credit for food and gas.
Once again, we see that more Americans are pushed to the edge in an economy destroyed by a Federal Reserve that is causing high inflation by printing too much money, and a government intent on free trade that is not fair trade.
This is the first story which makes me truly sad for our country. It's going to get much much worse.
Schahrzad Berkland
I've been writing about the distressed consumer for some time. The typical American, it appears, uses his mortgage equity to pay off his credit cards. It's the credit card that is the lifeblood of daily spending. The main industry growing in this country is debt financing. Our spending is greater than our productivity, with the difference paid for with credit. This is so unsustainable. Here's a history of my commentary on the distressed consumer.
Mortgage equity withdrawal gave our economy big cash infusions for boats, cars, kitchen remodels, and spending money for shopping and trave. With home prices flat, the economy slowed as those large purchases dwindled. In addition, consumers now turned to credit cards to pay their daily living expenses that once came from their home printing press, I mean mortgage equity withdrawal.
Consumers turning to credit to make up for mortgage equity withdrawal.
Credit card use is up, while retail sales are falling, because consumer need credit to pay for food and gas
Consumers relying on credit to pay bills while unemployed, or to make up for loss of mortgage equity withdrawal, are a further loss of buyers to the housing market
Americans are living off debt just to pay the daily bills of food, gas, clothing, and medical care.
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Reader Comments (10)
Not surprising. The American consumers will continue to consume. Watching people's spending habbits, i can tell that consumers are hooked on buying junk. They can't stop shopping.
If they have to sacrifice the house, so be it.
Not to sound cold hearted but I think a recession is not only necessary but be beneficial for the overall health of the US economy. Some American need to learn the value of thrift and savings. The late conumerism have literally consumed our wealth. It's time for us to wake up and face the consequences.
I agree. Natural law must prevail. The government should have allowed the recession of 2001 to run its course; insted, they just blew a bigger credit bubble and let the derivatives market get totally out of control.
A recession is easier to bear if we have a wise national leaders who can pull us together through this difficult time. Sacrificing is even enjoyable when you know this is all for a greater good.
I have having difficulty with the credibility of current reports on the rate of inflation. I feel the price of food and housing has risen enormously, but that a numbers gadgets have somehow concealed the extent to which prices affecting the poor and middle class have risen. What have CPI indices shown on the basics?
Lower prices on import items present a fascinating picture. Have what would ordinarily be foreign purchases of American goods been funneled into inflated home equity vis a vis the flow of cheap money? In other words, it appears foreign producer are not introducing the income here needed to buy their goods through the purchase of our manufactured items, but through the "gold rush" on inflated home values. They are lending us money to buy their product, and we stand quiet because the rising value of our homes has been a palliative, of sorts.
The current administration cooperated in this project because it needed high deficits to delay political and economic fallout associated with tax reductions and our middle east adventures.
It seems that something really awful is about to happen. I don't know if "recession" is the right word for it. It looks like we're about to reap a harvest of weeds sown in deregulated financial markets. I don't mean to sound like such a doomer, but I don't know of an economic model which suggests a viable future under these circumstances.
Inflation is running at 6% annually, if we use pre-Clinton era CPI methods. John's Shadow Government Statistics has the true inflation and GPI numbers, calculated with the pre-Clinton methods. Government data is massaged to give confidence to the markets.
What is wrong on CPI is for another post...it's been covered well by Barry Ritholtz at the Big Picture.
Thankyou Scharhrzad.
Tainted information from a government source on something this basic does not bode well. I'm beginning to understand the urgency of your presentation to the local task force--aside from the three minute alarm clock.
I'm glad you sensed my urgency. It is only based on all my studies on this topic, that I am honestly getting alarmed about our future in this country, and in California. Worst, neither the media nor our economists nor our government is being level with us, for the most part. Exceptions are Ron Paul, Lou Dobbs of CNN, Nouriel Roubini and Dean Baker and Paul Krugman and Stephen Roach... They are all lone voices of honesty and true Americans.
There's a myth that bankruptcy and credit card debt are caused by free spending consumers. That is a myth. Elizabeth Warren, Harvard law professor, author, and predatory lending advocate, has studied this issue and found people use their credit cards to pay for the basics of life, and for medical care when they lack health insurance. Most bankruptcies are the result of a job loss or a medical setback.
The truth is, outsourcing and insourcing and money printing have left the middle class with less purchasing power every year. We are falling behind, so the MEW machine was our last chance to make ends meet.
Americans need access to cheap credit just to pay the bills!
That is why I am so concerned about this housing slowdown. Our economy is in jeopardy. Recession, or depression, pick one.
Needing credit cards "just to pay the bills" is relative. Driving around San Diego it's hard to find a car more than 5 years old. People have all kinds of brand new clothes, cell phones, music players, etc.; they drive long distances without mass transit or car pooling in fuel-inefficient wasteful SUVs; they eat far too much food; etc. There is this myth that somehow everyone is entitled by the Creator to have all of these consumer items. Wrong. And soon they won't.
People have been warning about this recipe for disaster for centuries! Where have ya'all been?
It's simply the best of all worlds; Soviet-style state capitalism, Nazi-style fascism, with a dash of corporate monopoly capitalism and a whole bunch of corruption. Mix thoroughly and bring to a boil with high technology and plentiful cheap labor. Garnish with greed. Enjoy!