The question is, where is the money for the spending coming from? We haven’t seen wages going up or significant employment changes.
With unemployment high and personal wealth diminished, how was it that strapped consumers were paying down their credit card debt last year? It turns out they probably weren’t.
The bulk of 2009′s drop in credit card debt instead came because banks were forced to write off loans consumers failed to pay, according to an analysis of Federal Reserve data.
…..In 2009, banks wrote off a record $83.27 billion in credit card debt. A study by consumer credit research site CardHub.com found that accounts for the bulk of the of $93.2 billion drop in consumer card balances
Debt and spending will delay but not avoid the debt problems we have in households, corporations (they are running up debt too, again), cities, states and the Federal Government.
Interest on debt, whether it is a credit card or a home loan or a muni bond, eats up the income that could be spent on other things.
That is why the Federal debt is not the problem as much as the interest on the debt. The interest now is super low because the loans (mostly short term that roll over and over and over) have had low rates. When rates return to normal we are looking at interest quadrupling to become the largest budget item we have or close to it according to our government accountants.
This news, though, is good if you want more time to prepare for when the piper has to be paid.
Ever since we went off the gold standard totally under Nixon, the doomsday predictors have said “when this manipulated economy tanks, it is all over.” Yet, each time we found a new way or bubble to delay that doomsday. Of course, each time it became more difficult and we added even more risk to the long term health of the nation and made our future even bleaker but, we didn’t implode.
That is why I still believe it could be months to a couple years while people like Marc Faber say five years or more before it falls apart with the dollar. I don’t know when. I only know what the trends are and that we are constantly making it worse and haven’t changed one policy that got us in this mess.
Enjoy any rally we get. Make money. Be prepared to bail at a moments notice and watch the global economy more than the U.S. economy.