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Empty Basket
Worrying about financial disaster is an important national pastime. There are legitimate concerns about one's own situation, and the country's; but there are other worries which class only as entertainment for those who enjoy a little morbid fascination with monetary doom.
The trick is being able to tell which is which.
The most recent scenario for going to hell in a handbasket was especially appropriate for the Christmas season: holiday retail sales were poor because consumers are in terrible shape. The public has borrowed 'way too much money in an effort to defend a shrinking standard of living, and when borrowing power is exhausted (now), recession and waves of bankruptcies will inevitably follow.
Recent headline, New York Times: "Credit Card Debt Up 47% In Last Two Years." Sure enough: there's a handbasket right there, and we're in it.
Wait just a minute. Something doesn't quite add up, here. Even if consumers wanted to do such a thing, how could we? Forty-seven percent, in two years? Lenders are dumb, but that dumb?
One of the sources listed was Keefe, Bruyette & Woods, the biggest of the bank consulting and analysis firms. Their main office is in New York City, and they usually treat non-customers with all the cordial hospitality suggested by their location. However, if you prowl around their telephone tree during a holiday week when the real meanies are gone, you can find someone sufficiently senior to have access to the data, and junior enough to talk to you.
This 47% numberÉ ah, is that the total amount of net new debt taken on by American families?
"I don't understand."
Well, lot of people have started to buy their groceries with credit cards in order to rack up frequent flier milesÉ you know, like the toasters S&Ls used to give away?
"What is a toaster?"
(Junior indeed. Never mind.) Is it possible that people are using their credit cards more, but as a replacement for checks, and are therefore not really taking on new debt?
"How would I know?"
(Oy.) Well, what is your data source? What -- exactly
-- grew by 47% in the last two years?
"Oh. Why didn't you ask? It's the sum of statements each month."
Not including payments made in the return envelope?
"No, we don't consider payments. Just the billed balances."
The nation has been told for years that we're doomed: we're borrowing ourselves into oblivion, and something should be DONE about it. It turns out that everything you've read about excessive consumer debt is complete, total nonsense.
No one, not the Fed, and not even the issuing credit card companies keeps track of net balances. If you charged a grand last month and paid off $900, nobody knows. Credit bureaus don't know, either, which most mortgage applicants soon discover. Credit bureaus report your credit balances as of the instant we hit the "print" button, not after your last payment.
Telecheck, the outfit which busts the«Name
passers of rubber paper, has pretty good stats on the overall usage of checks. Falling like a rock, they say.
The Fed does have good stats on overall debt service. The Fed says that mandatory consumer debt payments (as opposed to principal prepayments) have fallen since the last recession. Debt service is down to 17.6% of income, which is dead smack in the middle of the normal range for the last thirty years.
The next time somebody announces the departure of the consumer debt handbasket for Hades, you'll know to be suspicious of other predictions of doom from the same source.
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