Tuesday, May 5, 2009

SAR #9125

Collapse takes time.

On the Never Never: The Keynesean cure - government spending to replace absent consumer demand - will drive interest payments on US debt from last year's $172 billion to $806 billion a year in 2019. But we'll have other problems by then.

The Other Shoe: Analysts say that the world has passed peak oil, so any economic rebound will quickly drive oil prices above $100 a barrel, which will kill the recovery and start another round of decline. This cycle will repeat indefinitely.

For Want of a Nail: Credit card losses will mount with rising unemployment, and the faster unemployment rises, the faster banks will suffer credit portfolio losses. Unemployed customers also use their cards less, which will lower both the fee income and the amount of interest income performing credit card debts generate. Charged amounts dropped 5% in 4Q08 and 14% in 1Q09.

Planning for Failure: The New York (Albany) Capital District Transportation Authority reports an 11% increase in ridership for the last year. CDTA response to this success is to reduce service runs by 35,000 hours annually.

The Shouting: 70% of US banks expect loan delinquencies and losses to increase this year if the economy progresses as (rosy glasses on) forecast. So the economic downturn is all over. Maybe. Except, of course, for all the bad stuff that's going to happen.

Naturally: At the end of this recession the 'natural rate' of unemployment will be "markedly higher," perhaps as high as 7%, as hundreds of thousands of jobs have vanished forever, and millions of the unemployed will find it hard to get hired again and will have to accept lower earnings. It's natural.

Accomplishment: The disappearance of Bolivia's Chacaltay glacier, long predicted by global warming nuts, is finally fiat accompli. The 18,000 year-old glacier finished melting away early this year.

Circus: Private non-residential construction has fallen 5.7% from the 2008 peak, residential construction is 61% below the early 2006 pace, pending home sales are up 3.2% or 1.1% depending on who you read. In the center ring, foreclosures...

Trasher Island: There's a Texas-sized island of plastic trash floating in the center of the North Pacific gyre, composed of six million tons of plastic. Cleaning up the mess would bankrupt any country that tried. Another accomplishment made possible by petroleum.

Waiting List: Having learned that offering high-risk borrowers low down-payment loans lead to defaults, the FHA has insured $180 billion of new low down-payment loans to high-risk borrowers. But don't worry, it's all insured. Back in 2006 the FHA was on the hook for only 2% of mortgages. Now 60+% are FHA insured, so the banks won't be losing any money. Nope, not the banks.

Pudding: Wages are falling all across America. Why? Because unions would rather give ground than give up, because workers don’t dare protest, because they don’t think they can find other jobs. The stock market thinks reacts as though this were a good thing. Yea, the stock market doesn't think falling wages are a symptom of a sick economy getting sicker. Repeat after me: "Those with no income don't buy things."

Porn O'Graph: More are depending on the single-prayer health system.


The Anecdotal Economist said...

Re: For Want of a Nail...

Unfortunately, unemployed people tend to use their credit cards less AFTER they have been maxed out due to being unemployed, in the fervent wish that they will become gainfully re-employed quickly enough to stave off the inevitable personal financial armageddon awaiting them from maxing out said cards.

Increased card usage, making minimum monthly payments and proximity to credit limits are what trigger those "we have decided to adjust your terms" letters which double or triple interest rates to the immoral 30%+ range, which, in turn, will insure the cardholder eventually defaults and likely files bankruptcy.

It's a process...Wait until unemployment hits 10-12% U-3 headline and 20-24% U-6. Card default and charge-off rates will begin escalating, from the 10% currently (!), to multiples of the unemployment rates.

Then card companies will further try to squeeze the (few) remaining solvent users with additional fees, higher rates and so on, until the whole unsecurred revolving credit card system blows itself up and disappears.

Can't wait...

fajensen said...

They sell non-performing credit card debt to recovery businesses for cents on the dollar.

A friend of mine left the UK with DKK 80000 (GBP 6000) on a Natwest Mastercard. A year later "they" found him and made demands for debt + 1 years interest @ 30% + charges + management fees; with copious threats of all sorts of legal action.

My friend's reply was that they "could have DKK 20,000 or go stick it up their arse"; they agreed immediately which annoyed him immensely: obviously they would have gone lower.

fajensen said...

Pudding: But the risk that America will turn into Japan — that we’ll face years of deflation and stagnation — seems, if anything, to be risingJapan would be the lucky, but very unlikely, outcome!

The difference is that Japan is a country with a very disciplined, homogeneous population.

The US is so multi-cultural that it needs to imprison about 3 % of the population just to keep *some* law & order - it is the country that jails the most people.

Once the money for all the jails, policing and social programmes are no longer available, the US will become much more similar to the Balkans than Japan!

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