Debt passes Income

[laurence]

http://www.msnbc.msn.com/id/14251360/

Wow. Trash debt (o.k. "revolving" debt) is now 108% of income. I can't even imagine having $120k+ in credit card/car loan debt. So when exactly do people stop spending?

 

[Gone4Good]

http://www.msnbc.msn.com/id/14251360/

Wow.  Trash debt (o.k. "revolving" debt) is now 108% of income.  I can't even imagine having $120k+ in credit card/car loan debt.    So when exactly do people stop spending?

As soon as the next credit card company won't finance the minimum payments due on the other 18 cards.

 

[samclem]

***************************************************************************
"The data shows that people are borrowing more money not because of over-consumption, but because they're caught in a bind," says Weller
***************************************************************************

Or, maybe they are caught in a bind because of overconsumption?

 

[TromboneAl]

nm

Post deleted in case my sister reads my posts.

 

[wabmester]

She takes me to a big drawer with at least 500 pens and pencils.  I joked with her that they could never use all of those in an entire lifetime.  That was no exaggeration.

You're failing to take unexplained disappearances into account. 500 pens and pencils would last me about a year.

 

[haha]

Visiting my sister is an amazing experience.  I'll give you one example.  I was cleaning out a drawer and came up with about 10 pens and pencils.  I asked sister where they keep all their pens/pencils.  She takes me to a big drawer with at least 500 pens and pencils.  I joked with her that they could never use all of those in an entire lifetime.  That was no exaggeration.

You must know your sister pretty well. If I found 10 pens and pencils, I would assume that I had found the mother lode of pens and pencils.

Ha

 

[Nords]

I was cleaning out a drawer and came up with about 10 pens and pencils.

$%^& it, I've been looking for those. The way they run around in this house, I'm not surprised that they ended up over there...

 

[laurence]

So will everybody just "reoganize" their debt over a longer term? 40 year amortized HELOCs?

 

[brewer12345]

So will everybody just "reoganize" their debt over a longer term?  40 year amortized HELOCs?

Funny you should mention that. 40 and even 50 year term mortgags are now being pounded ot by the (dumber) banks. Or better yet, just keep refinancing your Option ARM every few years, since you can get away with paying only 1% of the original principal a year for a while(with the rest of the interest added to your principal). After all, real estate only goes up, right?

It will all end in tears.

 

[IHateCNBC]

U.S. consumer credit rises 5.7% annual rate in June

WASHINGTON (MarketWatch) -- U.S. consumers took on a bigger-than-expected $10.3 billion in new debt in June, the Federal Reserve said Monday, nearly double what they did in May. Consumer credit outstanding grew by $10.3 billion in June to $2.186 trillion. That followed a $5.88 billion increase in May, which was previously estimated as a $4.4 billion gain. Revolving credit like credit cards increased at a 9.8% annual rate in June.

 

[Robert the Red]

I believe that the "household debt passes income" meme includes mortgage debt, despite what some news reports say. For example, see p.3 of http://www.woodstockinst.org/component/option,com_docman/Itemid,1/task,doc_download/gid,621/ (PDF). It's still a lot, having gone up from 70% to about 110% in the last 30 years, but it isn't all 'trash debt'.

 

[astromeria]

Factoids my brain has accumulated...

-- As normally measured, consumer debt includes car loans but not mortgages (not sure about home eq loans--seems like a grey area). EDIT According to the Woodstock Institute, I'm wrong about this--mortgage debt is included. <are we sure they aren't, you know, naked and stoned >

-- 40% of CC users pay in full each month, and of the rest, a smallish percentage (10%-20%?) are responsible for most of the revolving debt.

-- The fastest rising group of CC debtors are over-65s who retired on too little for their expenditures.

 

[d]

is now 108% of income

this $2.17 trillion "consumer credit" does not include "home mortgages" ($8.9 trillion) ... but note that "personal income" is $10.87 trillion.  so consumer credit = 20% of income.

 

[scrinch]

Okay, so now we know why stocks go up. Increased GDP underpinned by runaway overexuberant trash debt funded consumer spending.

What did brewer say? It will all end in tears.

 

[laurence]

Hmm, thanks for clarifying, I thought it didn't include mortgages. Heck, my debt is way over 100% of income then.

 

[deserat]

Hmmm, as I read astomeria's response, Pareto rules - 10-20% is the problem - is that for sure?

What scares me (if all of the statistics cited are true) is that those without measurable debt will be taken to the cleaners by either the government or those who can't control their spending (either through the government or some other crazy scheme). Reminds me of a statement made by a famous historian (can't remember the name now):

History of societies is like a systole and diastole - the accumlators accumulating more and more and the spenders spending more and more - then a violent revolution will occur and re-distribute the resources - the cycle starts again - his prescription was to install a wealth redistribution mechanism so that the 'violent revolution' wouldn't occur - it would just be a slow trickle - his reasoning being that a trickle would be less disruptive to the overall society - lengthening its life.

Deserat

 

[brewer12345]

I think we have a long way to go before it comes to that. After all, the US went through the Great Depression and managed to avoid a massive redistribution of wealth even though anyone who had mortgaged property pretty much lost it.

More likely, we have a large wae of foreclosures, 5 years of crappy RE markets, bank failures spike, the Feds (and the taxpayers) end up holding the bag on a bunch of failed banks, and things go back to normal afterwards. If this happens, I anticipate buying an awful lot of real estate at some point.

 

[deserat]

So ownership and cash are king then - eh? I get it - well, I've tried to cover all the bases - could pay off my house right now if I wanted - have long term savings, etc. I'm pretty sure I'd ride it out well - but your point of thinking about that as an opportunity to acquire is a good one. Thanks - Deserat