January 10, 2011 at 5:51 PM
There was a piece of significant news that was released last Friday at 3PM in the afternoon. Consumer credit expanded last month by $1.35 billion when the estimates had been for a decline of $2.5 billion. The prior month was revised to an increase of $7 billion, which had previously been reported as an increase of $3.4 billion. So there you have it! The Fed and Administration has now been successful at getting the grossly overleveraged consumer to begin destroying their balance sheet once again.
It isn’t bad enough that the Federal government is now insolvent, but the consumer is now chasing it down the road to perdition. At least now we have the explanation of how consumers were able to cram mall parking lots this past holiday season. Despite the fact that incomes have been relatively flat and job growth has been anemic, consumers have decided it’s ok to pile on debt because they now know that banks will renegotiate all their non-performing loans and then the government will just bail out the banks.
Therefore, the savings rate will be going back towards zero and household debt will creep back towards 100% of GDP. And we are speeding towards another meltdown, only this next one will be much worse because the government won’t be able to bail out anything or anybody. Instead, it will be the one going around hat in hand.