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Thread: Economic facts that can't be spun part 7 - Consumer Borrowing down sharply ...

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    Default Economic facts that can't be spun part 7 - Consumer Borrowing down sharply ...

    (snip)"WASHINGTON – Consumer borrowing fell again in May, more evidence that Americans remain jittery over their finances and the durability of the economic recovery.

    The Federal Reserve said Thursday that borrowing dropped by $9.1 billion in May. It also said borrowing declined by $14.9 billion in April, revising an initial estimate that showed a gain of $995 million for the month.

    Consumer borrowing has fallen in 15 of the past 16 months as households have struggled with uncertain job prospects and battered finances following a deep recession.

    In May, consumers borrowed less on their credit cards and took out fewer auto loans. Credit card borrowing has fallen for 20 straight months.

    Many consumers, confronted by a deep recession and a weak job market, have tried to get their household finances in better shape by reducing their debt levels. In addition, banks during the recession have imposed tighter lending standards in an effort to cope with their rising levels of bad loans.

    Analysts said the significant downward revision to April borrowing and May's decline show that consumers remain leery about taking on new debt.

    "There is simply no way to spin this data, nor the past few months, as anything other than a confirmation that the consumer has not come roaring back," said Dan Greenhaus, chief economic strategist at Miller Tabak in New York. "The consumer remains quite stressed ... with income growth relatively muted and labor improvements few and far between."(snip)




    There are arguably two important take-aways from this Federal Reserve 'update'. The first is that yet another of the gov'ts 'rosy' official estimates released earlier in the year - which arguably constituted a basis for mainstream economic media opinion that the recession was turning around - was pure and utter 'fiction'. How else can one characterize an early estimate of +1 billion versus a revised estimate of -15 billion after the actual data comes in ?

    The second, which is arguably of importance to exotic dancers, is that a significant number of middle class Americans ( i.e. your club customers ) are now choosing to use a major portion of whatever cash is available to them for 'non-essential' spending ( i.e. buying lap dances ) to instead pay down their credit cards / pay down their auto loans / pay down their mortgages and otherwise get their own financial 'house' in order.


    I'll also throw in some related 'historical' observations. It is well documented that, over the past decade, US consumers were ( on the average ) spending about 6% more money than they were actually earning ! This of course was accomplished by taking on additional debt - via mortgage re-fi's and/or larger auto loans and/or rising credit card balances. With today's tighter lending standards / tighter income verification regulations etc. that debt growth is now ancient history. Thus by 'definition' the level of US economic activity going forward must be 6% less than it has been over the past decade if US consumers are no longer 'growing' their debt levels !!!

    In addition, if many US consumers are now choosing to pay down their existing debts, the level of US economic activity is going to be even lower ... since the example of a club customer choosing to pay down his credit card instead of going to a strip club will be repeated throughout other segments of the US economy. And if you combine this additional percentage reduction in consumer spending ( paying down debts does not count as 'spending' since it creates no new economic activity )with the above 6% loss of 'debt expansion', you arrive at a percentage of economic contraction that definitely exceeds any reasonably expected overall economic growth estimate. The clear conclusion then must be that the US economy will continue to contract in the short term at least.
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    Last edited by Melonie; 07-10-2010 at 11:58 PM.

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    Default Re: Economic facts that can't be spun part 7 - Consumer Borrowing down sharply ...

    Saw on CNBC an analyst (who will never be asked back) that the public is re-allocating money meant for IRAs, 401Ks, etc. into savings and debt pay down.

    When one could use that money to "make money" in the market and housing by floating on CCs, I suppose it made (half-witted) sense. After all, 6% over income isn't so bad when supposedly one is making 20% on other investments. But now that it is becoming more obvious that money is not making money, they are going back to within their means of living.

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    Default Re: Economic facts that can't be spun part 7 - Consumer Borrowing down sharply ...

    I would also argue that recent proposals and/or actual changes in the rules affecting IRA's and 401k's is motivating people to pull money out ! One particularly 'damaging' recent change was outlawing the deductibility of charitable contributions funded by IRA / 401k money, which was a 'loophole' used by the rich to generate fat charitable deductions which in the past significantly reduced the taxes they owed on other income.

    Another is the increasingly probable enactment of a 'means test' ... where having too much money in a 401k / IRA account when you reach retirement age could significantly reduce the size of future Social Security checks you receive.

    Also, perhaps 'Joe Sixpack' has been wise enough to realize that NOT paying down floating interest rate debts i.e. mortgages, credit cards etc. exposes him to huge future risk if and when US interest rates start to skyrocket as a result of record setting levels of US gov't money printing !

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    Default Re: Economic facts that can't be spun part 7 - Consumer Borrowing down sharply ...

    Or maybe Joe Sixpack has finally realized that it costs real money to spend well beyond one's means, and in fact it can cost one his house. If so, that's all good, seems to me.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: Economic facts that can't be spun part 7 - Consumer Borrowing down sharply ...

    For years all through the latter half of the 90's and most of this decade we kept hearing about how havinga 0 savings rate and consumers going into deeper and deeper debt was a "bad thing" They ber everything on the idea that they would nEVER loose their jobs and their house would always rise in price at 10-30 % per year, well they lost that bet.

    So now after this very hard lesson the average american has started saving like their grandparents who learned that from the great depression and and now all those same people that whined for the last 15 years are all whining about how Americans are at long last living within or slightly below their means.

    Which way do you want it???

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    Default Re: Economic facts that can't be spun part 7 - Consumer Borrowing down sharply ...

    ^^ So this will lead to a slowing down in sales and an increase in investments, you think?
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: Economic facts that can't be spun part 7 - Consumer Borrowing down sharply ...

    ^^^ as to a slowing down in 'sales', it's important to be specific in regard to what 'sales' is actually measuring. For example, last year a given American may have spent $50 a week on gasoline ... consisting of 20 gallons of gas plus road tax plus sales tax plus ethanol tax. If that same American winds up spending $55 a week on gasoline next year ... consisting of 18 gallons of gas plus road tax plus sales tax plus ethanol tax plus carbon tax, have 'sales' increased ? In terms of amount of gasoline purchased the answer is no. In terms of total dollars spent in order to purchase slightly less gasoline the answer is yes. The same 'quantity' versus 'total dollar cost' ambiguity also exists for all other 'sales' subject to potential increases in prices plus potential increases in taxes.

    ^^^ as to an increase in investments, that remains to be seen ! It is one thing to involuntarily decrease one's 'consumption' as the result of a forced reduction in credit / new borrowing. It is another thing to voluntarily decrease one's 'consumption' even further in order to actually 'save' money. And it is something else again to choose allocation of some of that 'saved' money toward investments. If the 1930's are any indication, while we might see individual savings flowing into positive bank balances, it's doubtful we'll see individual savings flowing into stock markets or new business investment.

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    Default Re: Economic facts that can't be spun part 7 - Consumer Borrowing down sharply ...

    Not until greatly increased stability is seen.

    I wasn't concerned with sales of gasoline, but with general sales in volume terms.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: Economic facts that can't be spun part 7 - Consumer Borrowing down sharply ...

    We all grew up where credit/borrowing was how buying was done. our economy developed to depend on it. Now that we've regained (some) of our senses...the numbers look bleak. In acutality, they're realistic and right. We HAVE TO live within our means...not our ability to maybe pay the min balance!

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    Default Re: Economic facts that can't be spun part 7 - Consumer Borrowing down sharply ...

    ^^^ agreed, but that is going to be extremely painful for many Americans. Again reference the fact that for much of the past decade americans on the average have been spending 6% more money than they actually earned net of taxes via growth in credit card debt, car loan debt, home mortgage debt with cash out refi's etc. Now not only is that 6% gone forever, but tax increases are about to start reducing earnings net of taxes. Combine the two and you get something like an 8-10% net reduction.

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