Credit Card Bond Spreads Reach Record Over Benchmarks

Silly Americans, you cannot prosper while drowning in debt. Oh wait... there is always bankruptcy. Go ahead, spend away and let the investor eat the loss. They can spin it as write down and charge new borrowers a higher interest rate. Besides, you don't need good credit if everyone defaults at the same time. You credit score will still be relatively good.

I was taken back slightly as I read the following lines. Consumer debt is $2.59 trillion. That is about 1/3 of the national deficit. Without doing the calculation, I estimate that is roughly $10,ooo in debt for every man woman and child in this country. It would be interesting to find the per capita income and then derive the percentage of income paid out in interests each year. It kind of seems like share cropping all over again. History repeats itself in mysterious ways.


U.S. consumers borrowed more than twice as much as economists forecast in June. Consumer credit rose by $14.3 billion, the most since November, to $2.59 trillion, according to the Federal Reserve.

http://bloomberg.com/apps/news?pid=20601087&sid=a2qvrELyaqmA&refer=home

Our Phony Economy

Even though I am a junkie for economic theory and mathematics, this struck me as a refreshing depiction of our economy today.

The article excerpt and link are far below (look for italics). The following is just my rambling.

In my opinion, we have been riding a bubble of sorts. While I avoid branded items, most unnecessary expenses, and popular culture I realize that most of America thinks I am weird. To them, and you, I say thank you. You have fueled an economic bubble that has made it easier for me to live on the cheap. While you are stuffing your face with McDonald's, wearing Abercrombie & Fitch, and maxing out your MasterCard--I am stacking my cash and frequenting thrift stores. My salary is in line with yours, but I am not in line with you at Starbucks. I am winning, for now.

I long wondered how you afforded to consume so many products. The numbers didn't seem to add up, and now I know they truly do not. You are addicted to products. In order to get products you need money. Hmm.. this sounds like a drug. And your dealer is the credit industry. Unfortunately your dealer seems to be cutting your supply after years of endless offers.

Putting it all together, I am taking some of the blame off of the financial sector for the economics problems we currently see. Let us give some blame back to the people who failed to read their financial contracts and devise repayment plans and strategies. We do not fault casinos for playing unfairly. Why is it we think banks and lenders are supposed to do us favors? They are all in the business of making money.


By the standard of the GDP, the worst families in America are those that actually function as families–that cook their own meals, take walks after dinner, and talk together instead of just farming the kids out to the commercial culture. Cooking at home, talking with kids, walking instead of driving, involve less expenditure of money than do their commercial counterparts. Solid marriages involve less expenditure for counseling and divorce. Thus they are threats to the economy as portrayed in the GDP. By that standard, the best kids are the ones who eat the most junk food and exercise the least, because they will run up the biggest medical bills for obesity and diabetes.

http://harpers.org/archive/2008/06/0082042

Crying About Credit

While I believe the credit industry is underhanded, I have little sympathy for the victims. However, I do suggest watching the documentary Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders (2006). From the article, Banks Warn Credit Card Legislation May Hurt, Not Help Consumers, I found one statement at the end profound and rudimentary.

``I've since decided to simply use cash and only use a credit card as a last resort,'' Chan said.

But, didn’t we already know that credit cards should be a last resort? Once again, I suggest we all move to strictly using cash on hand. Aside from the obvious individual costs, this current macroeconomic crisis–which is impacting us as a whole–is born out of the financial lending markets. These markets should serve a niche market or cease to exist at all, in my opinion. Unfortunately, citizens in want of immediate gratification–the majority of Americans–keep begging for more credit at almost any cost. This near inelastic relationship has opened the door for extortion and victimization. Instead of waiting for the government to create legislation to protect the stupid–most of us at this point–let's all stop buying the overpriced name brand clothing, purchasing large quantities of gasoline, and dining out with our plastic. Oh wait, did I just lose you? I think you misunderstood. I didn't say you shouldn't spend money on those items; that is your business, not mine. My point is at the tail of the sentence. Protect your own financial interests already. Lose the plastic.