(Image: source)
For the bulls, yesterday's news of a much higher-than-anticipated jump in consumer borrowing is yet more proof that the recovery is on track:
"U.S. Consumer Credit Climbed by $19.3B in Dec." (Bloomberg)
Consumer borrowing in the U.S. rose more than forecast in December, driven by demand for auto and student loans.
Credit increased by $19.3 billion to $2.5 trillion, Federal Reserve figures showed today in Washington. The gain topped the $7 billion median forecast of economists surveyed by Bloomberg News and followed a $20.4 billion advance the prior month.
Consumers “are willing to take on this debt because there is some increasing degree of confidence in the economy,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, who projected credit would climb by $15 billion, the highest in the Bloomberg survey. “Consumers over the past several years have done a pretty good job of repairing their balance sheets.”
An improving job market may be giving households the courage to take on more debt in order to sustain spending, which accounts for about 70 percent of the economy. At the same time, increasing dependence on credit may be an indication the gains in employment have yet to push wages high enough to single- handedly give consumers the means to keep shopping.
Unfortunately, as the Rochester Democrat and Chronicle writes in "Report: Student Debt Could Be Next Economic Bomb," this particular track looks to be leading us to another train wreck.
Student debt is looming as a national problem that could have repercussions reminiscent of the mortgage crisis, says a new report by the National Association of Consumer Bankruptcy Attorneys.
The study, released Tuesday and based on a nationwide survey of 860 bankruptcy lawyers, said that bankruptcy attorneys nationwide are seeing at the ground level "what feels too much like what they saw before the foreclosure crisis crashed onto the national scene."
The report calls for a change in bankruptcy laws.
In the survey, 81 percent of respondents said that potential clients with student loan debt have increased "significantly" or "somewhat" in the last four years.
And 95 percent of respondents reported that few student loan debtors have any chance of discharging what they owe through a bankruptcy proceeding because they have to prove "undue hardship" — a standard that is difficult to meet.
The total debt from student loans is about $1 trillion, about 14 times more than 15 years ago and well above the estimated total credit card debt of $798 billion.
...
The report urges a change in bankruptcy laws so that those burdened with student debt would be on the same footing as others in debt facing bankruptcy.
"It's not fair and needs to be corrected," said U.S. Rep. Steve Cohen, D-Tenn., sponsor of legislation that would make changes sought in the report.
...
William E. Brewer Jr., president of the National Association of Consumer Bankruptcy Attorneys, offered a warning.
"Take it from those of us on the frontline of economic distress in America," he said. "This could very well be the next debt bomb for the U.S. economy."
Of course, Wall Street knows better -- right? Otherwise, why would they keep buying stocks?
Last time I checked, congress (Dems and Repubs alike) and the President were functioning as wholly-owned subsidiaries of the Wall Street banking and financial "industry" so I think I'll discount any possibility for changes to bankruptcy provisions to include student loan defaults. One is left to wonder how even loan sharks are going to squeeze money out of destitute former students. I know a few, $80k of debt with no job, no prospects and no assets! I'm sure the improving economy will fix all these problems.
Posted by: kwark | February 09, 2012 at 12:29 AM
@kwark ...you're right!
Bill Black: On Why White Collar Crime is on the Rise, How to "Hotspot" Elite Financial Crimes, and Why Republicans and Democrats are Not Interested
On why Republicans and Democrats are not pursuing elite white collar crime: It would hurt campaign contributions. Finance is the leading source of campaign contributions for both parties.
http://www.capitalismwithoutfailure.com/2012/02/bill-black-and-dylan-ratigan-on-why.html
Posted by: All corrupt systems go | February 09, 2012 at 10:01 AM
Ben Bernanke was (and is through his Princeton Univ pension) is a front row beneficiary of the student loan scam.
For decades, tuition was increased 8-10% year after year after year -- while the liar Bernanke claims inflation was never over 3%
Students should take a cue from Harvard Law students who sued their alma matter for false advertising. Many of the jobs that academia promised do not exist, and those that exist do not pay anywhere near enough to justify tuition levels.
Students probably can't discharge the fraudulent loans -- but they have a slam dunk case for fraud against every school in the country
Posted by: Greg | February 09, 2012 at 10:24 AM
People use credit cards because they don't have the cash. My assertion is that the economy still sucks and people are resorting to paying for what they need--be it education or something else--with credit.
Meanwhile, another indicator of how bad things are is the Baltic Dry Index. This measures world-wide shipping. The index is now negative. It's so bad that some shippers are actually paying their customers to use their vehicles.
The index covers, trains, planes, ships, trucks. It also means that the demand for fuel is going down--yet the price keeps going up. Congress has yet to do anything about the speculators either.
Posted by: sharonsj | February 09, 2012 at 11:53 AM
Thursday, February 9, 2012
Wall Street Takes "Nuclear" Option In Fighting New CFTC Regulations
Who do you think will win this battle? The ink is barely dry on Dodd-Frank - and the volumes of associated bureaucratic multi-hundred page "handbooks" are just now rolling off the Government's other printing press LINK - and already Wall Street is employing the highest level of influence and firing lethal legal weapons in order to protect its "family" and its license to steal.
http://truthingold.blogspot.com/2012/02/wall-street-takes-nuclear-option-in.html
Posted by: Does not look like the debt train will be derailed anytime soon | February 09, 2012 at 12:39 PM
That's right. There are companies that are not reliable and they are not worthy to gain trust. Is there's any law that protect the rights of the investors.
Posted by: immigration lawyers | February 10, 2012 at 07:12 AM
Fed Plays Wall Street Favorites in Secret Deals
The Federal Reserve secretly selected a handful of banks to bid for debt securities acquired by taxpayers in the U.S. bailout of American International Group Inc., and the rest of Wall Street is wondering what happened to the transparency the central bank said it was committed to upholding.
“The exclusivity by which the process has shut out smaller dealers is a little un-American,” said David Castillo, head of sales and trading at broker Further Lane Securities LP in San Francisco, who said he would have liked to participate. “It seems odd that if you want to get the best possible price that it wouldn’t be open to anyone who wants to put in the most competitive bid.”
‘Crony Capitalism’
“The purpose should be to get the best price for the taxpayer,” said Robert Eisenbeis, a former research director at the Federal Reserve Bank of Atlanta who’s now chief monetary economist for Sarasota, Florida-based Cumberland Advisors. “Anybody knows the more bidders the better, so it’s a little hard to understand why they would essentially pick potential winners and losers. That smacks of crony capitalism.”
Public Fashion
It’s not clear that the Fed’s approach resulted in higher prices than if the bonds had been sold in a more piecemeal and open fashion, said Adam Murphy, president of Empirasign Strategies LLC, a New York-based provider of data on securitization-market trading.
“I fail to see how running a limited participation, secret auction is any way beneficial to the owners of these bonds, the U.S. taxpayer,” Murphy said. “Not to mention these bonds are now trading 15 to 25 cents” on the dollar “cheaper compared to when they were last auctioned in a more public manner.”
http://www.bloomberg.com/news/2012-02-10/fed-plays-wall-street-favorites-in-secret-bond-deals-mortgages.html
Posted by: Back on inside track | February 10, 2012 at 08:44 AM
The Weakening of Nations: How Tax Work-Arounds Undermine Our Society
Loopholes, poor regulations, and off-shore havens allow corporations and the very wealthy to draw on the benefits of a strong nation-state without fully paying back in, eroding a system that's less tested than we might think.
The writer Nicole Foss in the blog Automatic Earth recently forecast the coming reduction in the "trust horizon," in which individuals believe less and less that these large institutions will support anything positive in their daily lives. All this turmoil from housing bubbles and derivatives and subprimes and currency swaps and Greece and Germany and austerity is eroding the trust we have in top-down institutions.
http://www.theatlantic.com/international/archive/2012/02/the-weakening-of-nations-how-tax-work-arounds-undermine-our-society/252779/
Posted by: Who's The Conducter? | February 10, 2012 at 12:20 PM
On Track...to a mental breakdown.
The financial industry is plagued with mental breakdowns,
an interesting article in Le Monde,if you read french.
Posted by: roger | February 10, 2012 at 12:27 PM
Why the Foreclosure Deal May Not Be So Hot After All
Really this looks like America's public prosecutors just wilted before the prospect of a long, drawn-out conflict with an army of highly-paid, determined white-shoe banker lawyers. The message this sends is that if you commit crimes on a large enough scale, and have enough high-priced legal talent sitting at the negotiating table after you get caught, the government will ultimately back down, conceding the inferiority of its resources.
Read more: http://www.rollingstone.com/politics/blogs/taibblog/why-the-foreclosure-deal-may-not-be-so-hot-after-all-20120209#ixzz1m0drDMzG
Posted by: Banana messenger | February 10, 2012 at 02:47 PM
When I first came to the States back in the 70s, one of the things I heard was America was built on spending. Little did I know that these days America is being built - Oops! being demolished - with borrowed money by the government and the public all together. It sounds like a conspiracy.
Posted by: Doable Finance | February 12, 2012 at 07:41 PM