Consumers Give Signs of a Free-Spending Holidays... (NYT buries bad news)

In typical NYT fashion, the happy-talk, keep-spending, everything-is-going-to-be-alright bullshit is front-loaded and the bad news is reserved for the readers who persevere to the last couple paragraphs. It looks like spending is up, but it's less than the debt people are taking on, and it looks like wages aren't keeping pace either. The little bit of new spending is going to become a real burden when consumers discover they're financing it at 18-25% pa.

Oh, and notice what people are spending money on according to this article. Liquor. That's a good sign?


A customer discussed computers at a Best Buy store in Williston, Vt.

By EDUARDO PORTER
Published: November 25, 2004

Jim Bernau is expecting to enjoy this Christmas a lot more than last year's. Mr. Bernau, the founder and president of Willamette Valley Vineyards of Salem, Ore., is used to seeing holiday-season sales begin in earnest right after Thanksgiving. But last weekend, people were already three deep at the counter of his winery's tasting room.

...

Business in other areas is showing promise. Retail chain store sales rebounded from a dismal spring and summer to rise 1.3 percent in September and 0.8 percent in October. Last month, employers added 337,000 jobs, the most since March, and the help-wanted index compiled by the Conference Board, a barometer of future job demand, rose for the first time in three months.

...

Perhaps the more important question is how consumers will emerge from their holiday shopping into 2005, as rising interest rates can be expected to hinder spending by making the burden of increased debt harder to handle.


Chart: Income Gains Are Modest, but Consumers Feel Flush

With interest rates still relatively low, debt is providing a significant boost to consumption.

...

And the appetite for credit seems unsated. Consumer credit rose by 5.8 percent in September, according to the most recent data from the Federal Reserve, to more than $2.05 trillion. Credit card debt and other revolving loans soared 10 percent, the fastest increase since January. In September, consumer spending grew 0.6 percent, though wage income increased only 0.4 percent.

Americans' propensity to spend more than they earn drove the personal savings rate last quarter to merely 0.4 percent of disposable income - the lowest on record.

...

Eventually, though, rising interest rates will bring the days of debt-powered hyper-consumption to a close. Real improvements in the number of jobs and in the level of wages will be needed to take debt's place.

http://www.nytimes.com/2004/11/25/business/25spend.html?oref=login

When will the credit card companies start failing because too many people can't pay even the minimum amount due? Or have the bankruptsy laws been changed so that those companies get first cut of anything?

Even my boss says that things are fixing to hit the proverbial fan, and he's bracing for it. Since he talks to the 'bigwigs' in the little town where I work, I'd say they are worried too. (and some are Bush supporters)

I hope he's wrong. I've been reading other analyses like this too though.

(The writer's description from publication:W Joseph Stroupe is editor in chief of Global Events Magazine, an online geopolitical magazine specializing in strategic analysis and forecasting. )

Similar to the framework of the Twin Towers that supported their massive weight, the dollar supports a massive load of debt, now totaling well over US$7 trillion in the public sector alone. Much of this debt load is, in effect, tenuously suspended at the upper portions of the US economic structure, where it places an undue load upon the lower, traditionally more stable part of the economic framework. This is true for a number of reasons.

Federal Reserve Board and government policies over the past 20 years or so have been extremely shortsighted, leveraging the economy's future stability and strength by means of large and perpetual deficit spending. The US government, and its citizens as well, have acted as if there would never come a day of accounting for the immense debt being amassed, that somehow the amassing of such debt didn't matter. Nothing could be further from the truth. And since the economic slowdown of 2000, Fed and administrative policies have caused a pointed and massive ballooning of very risky forms of public and private debt, all built upon the structural framework we call the dollar. One such form of debt is the massive selling of treasury notes to foreign central banks - most notably to the big Asian economies. Another is the Fed policy of "prolonged monetary accommodation", meaning keeping interest rates at artificially low levels, printing new money at the rate of nearly $1.5 trillion per year and the massive creation of easy credit.

In the past three to four years, debt encouraged by such policies has mushroomed almost beyond imagination. So, in effect, there now exists a mountainous load of debt concentrated within the upper sections of the US economy, where it cannot easily be neutralized to the ground level in an orderly fashion. How much of such massive weight can the framework, the dollar, carry and support before the structure caves in?

Is there already a fire in the immediate vicinity of that framework and are the steel girders already beginning to soften? The traditional international support for the dollar and the US government's foreign and economic policies is beginning to waver. Why? Because al-Qaeda has lighted a fire of sorts in the vicinity of the dollar framework. It has succeeded in instigating the US to take economic and foreign policy measures that have resulted in a loosening of the firm "girders" of international support for dollar and US policies. Al-Qaeda has indirectly lit the fires of controversy over the rightfulness and permanence, and even the desirability, of continued US global dominance in the diplomatic, economic and military spheres.

Now that fire is raging, and ferociously eating into the girders. Controversial and ill-advised unilateral US economic and foreign policies since September 11 are only fueling that fire. In the immediate aftermath of the re-election of President George W Bush, international support for the dollar and for related US economic and foreign policies is noticeably weakening, at a time when it is most needed to support an unprecedented and mushrooming mountain load of debt. Recently, voices from within the government of Norway have called for a switch from the dollar toward the euro for international petro-transactions. The governor of the Bank of Japan has recently stated that having the dollar as the sole global currency is a marked disadvantage and danger, and recommended moving toward adopting the euro as a global currency alongside the dollar. The appetite of the big Asian economies to continue buying dollar assets is waning - last month the US barely achieved the $60 billion of foreign cash inflow required each month to keep it afloat. Hence the possibility of a Twin Towers-like vertical collapse of the US economy is becoming greater, not lesser.

# The following highlight the extent of the mounting debt and the risk involved: The total US public national debt now exceeds $7 trillion.
# When Social Security, Medicare, Medicaid, military and government pensions are added in, the total national debt exceeds $51 trillion, according to Fortune magazine - that's nearly five times the gross domestic product (GDP) .
# The current year's deficit alone approaches $1 trillion when you add the off-budget items.
# Derivatives (highly leveraged and enormously risky instruments such as interest-rate futures, options and swaps) now total $180 trillion, 17 times the GDP. Warren Buffet calls derivatives "instruments of mass destruction". Many financial institutions have become highly invested in derivatives. Government-sponsored enterprises such as Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp) use derivatives heavily. Because of the inherent nature of derivatives, these instruments and those using them are extremely sensitive even to small and moderate interest-rate increases.
# The total US consumer debt is more than $8 trillion.

The Japan Times recently stated, "Stephen Roach, Morgan Stanley's perceptive economist, drew attention to the fact that some of the numbers are nothing short of frightening. The US currently has $38 trillion in debts, and there is a $54 trillion federal funding gap - the difference between what the government is committed to pay out and what it will receive in tax revenues."

http://www.atimes.com/atimes/Global_Economy/FK25Dj03.html

I read the Roach article too. It is similarly frightening.

to file. More and more you will see people settling their debts with a few grams of lead.

The Ballad of Hollis Brown
Bob Dylan

Hollis Brown
He lived on the outside of town
Hollis Brown
He lived on the outside of town
With his wife and five children
And his cabin fallin' down

You looked for work and money
And you walked a rugged mile
You looked for work and money
And you walked a rugged mile
Your children are so hungry
That they don't know how to smile

Your baby's eyes look crazy
They're a-tuggin' at your sleeve
Your baby's eyes look crazy
They're a-tuggin' at your sleeve
You walk the floor and wonder why
With every breath you breathe

The rats have got your flour
Bad blood it got your mare
The rats have got your flour
Bad blood it got your mare
If there's anyone that knows
Is there anyone that cares?

You prayed to the Lord above
Oh please send you a friend
You prayed to the Lord above
Oh please send you a friend
Your empty pockets tell yuh
That you ain't a-got no friend

Your babies are crying louder
It's pounding on your brain
Your babies are crying louder
It's pounding on your brain
Your wife's screams are stabbin' you
Like the dirty drivin' rain

Your grass it is turning black
There's no water in your well
Your grass is turning black
There's no water in your well
You spent your last lone dollar
On seven shotgun shells

Way out in the wilderness
A cold coyote calls
Way out in the wilderness
A cold coyote calls
Your eyes fix on the shotgun
That's hangin' on the wall

Your brain is a-bleedin'
And your legs can't seem to stand
Your brain is a-bleedin'
And your legs can't seem to stand
Your eyes fix on the shotgun
That you're holdin' in your hand

There's seven breezes a-blowin'
All around the cabin door
There's seven breezes a-blowin'
All around the cabin door
Seven shots ring out
Like the ocean's pounding roar

There's seven people dead
On a South Dakota farm
There's seven people dead
On a South Dakota farm
Somewhere in the distance
There's seven new people born

You must leave now, take what you need, you think will last.
But whatever you wish to keep, you better grab it fast.
Yonder stands your orphan with his gun,
Crying like a fire in the sun.
Look out the saints are comin' through
And it's all over now, Baby Blue

knew.

I'd gladly give up the NY Times in order to get a left wing Washington Times!

survive when they spend cash. That Best Buy can't survive off of people just buying a computer. They make their money off of service plans, installation of software and worthless tech service, rebates, basket attachments of company branded products, interest on company backed credit and keeping their labor pool on part time so they don't have to pay for benefits. It's all built on a house of cards that will come crashing down as soon as consumers wise up and understand they don't need any of this crap when they buy something from these type of stores.

If we start drowning, let the dollar drop a little so that we get some manufacturing jobs so that we can get a few jobs which makes us feel comfortable about going into more debt for the banks (ie wage slavery). But dont' give us unions and public education and the things that would actually make the middle class powerful.

The economy is like a spigot that they'll open and close just enough to keep the rich really rich and the poor just living and which will destroy the middle class intentionally.

I don't think they'll be able to keep all their balls in the air. It'll be interesting to see how long they can do it and to see what causes all the balls to drop. (Even if the balls do drop, I bet they have an exit strategy that allows even more power to concentrate in the hands of a few.)

You're quite right. We are living off of credit and paying debt (credit cards) by borrowing more debt (home equity). The refinance escape is closed off now, for all who haven't refinanced already will not like the rising rates to come. No place to run or hide from this, except get out of debt as much as possible.

...the conclusion you draw is that people are taking on more debt just to finance the debt they already have. Ie, they're probably only paying the minimum balances on their cards and getting "fee'd" to death.

I think that would explain why debt is going up at a much faster rate that spending, while personal savings rates are non-existent and wages have flat-lined. Where else is that borrowing going if not to wards financing existing debt?

Banks run the world. It's destroying the economy. Maybe when Bono is done convincing the west to forgive the developing world's debt, maybe he can start trying to get the banks to forgive the debt of the former middle class in America.

The chart shows huge personal income gains in 01. Also some hefty increases in 03.
11% increase in personal income twice in 2001?
Most people I know have gotten no raise (or 1-2% annual) for years now.
Could those #s reflect the huge giveaway to the wealthy via the tax cuts?

A lot of people lose their jobs, then reenter the job market at much lower wages and that results in big changes in that graph, while the reality is that people who stayed employed aren't making more money and people who got reemployed are making much less than they were.

to the income chart on the left. One in particular stands out; the 3rd quarter in 2003. Income went up 8%? Whose income? Based on what totals. Notice it doesn't say.

I'm totally suspicious of this chart. I think they're lying. You know the old saying about consumer confidence....it's all in the image.

LOOK GOOD. Even though we're hemorrhaging to death from our military adventure, look good.

the last row (row 40).

http://www.bea.gov/bea/dn/nipaweb/TableView.asp?SelectedTable=58&FirstYear=2000&LastYear=2004&Freq=Qtr

Disposable personal income, chained (2000) dollars 9.2 2.7 5.2 0.6 1.3 -1.7 11.5 -5.6 10.8 2.7 -1.7 0.2 1.8 4.3 8.2 1.4 2.4 2.4 1.4

This is the percentage change of the total (not per capita) disposable income, adjusted for inflation, from row 35, then multiplied by 4 to get an 'annual' figure. So what that really means is that total personal disposable income for the whole USA (ie affected by tax cuts for the rich) went up by 2% in the 3rd quarter of 2003.

Overall, per capita disposable income has gone up from $25620 to $27090 dollars in the 14 quarters since Bush was selected, ie 5.7%, or 1.6% per annum. Not so impressive, huh?

Using the figures that don't allow for inflation, in that 14-quarter period, pre-tax income went up by 11.1%, while post-tax income went up by 16.4%. Post-tax income, after allowing for inflation, went up by 9.5%. So inflation in that period was 6.3%. So pre-tax total income went up by 4.5% after allowing for inflation; the population incresed by 3.5% in that time.

So: per capita pre-tax personal income, during Bush's first three and a half years, outpaced inflation by 1% - or 0.3% per annum. All the rest was tax cuts - mainly to the rich, and borrowed from future taxpayers anyway. That's pretty damn poor.

is inflating that number (plus a little population growth).

it is horseshit.

That is probably the only thing we can do at this point to survive the next 4 years.....

:bounce:

Happy Thanksgiving Pachamama. Did you get my email/PM? :hug: