Tuesday, January 10, 2012

Merry Red Ink Christmas

Throughout the holidays, I saw people buying like mad.  I kept thinking, "Wait a minute.  The job picture stinks, about every asset and investment class is dropping, and everyone below the top 10% is getting absolutely rocked.  How is everyone buying?"

The old-fashioned way, apparently: debt.  The Fed's figures for November are out (December won't be out for another month, but I can't imagine it won't look worse.).  Consumer debt rose at an annual rate of 9.9%.  Revolving debt (credit cards, lines of credit, etc.) rose at an annual rate of 8.5%, and nonrevolving debt (mostly secured purchase money loans and student loans) rose at 10.7%.
This is a mess in the making.  We have learned nothing from four years ago.  People are once again buying by spending money they don't have by taking out loans they can't afford from people who don't care if they (or, more accurately, their clients/customers) get repaid or get stuck with collateral they can't unload so long as they get their origination fees.  And when this new house of cards collapses, where does the bail-out come from this time?

I see bankruptcies trending back up soon, but that isn't the real concern.  With the President, the House, and one-third of the Senate up for election this Fall, D.C. will pull any smoke-and-mirrors to kick the economic can past November.  But what kind of hangover will we get in 2013?  If what we've seen is any kind of prologue, you may want to find yourself a place to hide in the high grass.

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