Here's a depressing AP article about consumer borrowing habits. The Christmas shopping season is already upon us, with retailers begging you to come in and spend money you don't have. Home equity loans are dried up, leaving credit cards as the most accessible way to borrow your way into oblivion. As a result, revolving credit debt is up-up-up! That's not really what depresses me. What upsets me is that the "experts" out there, the economists, whoever they are, are completely happy with the outcome.
Now that Americans have sucked all the equity out of their home, they're diving right into higher-interest debt, with the credit card industry. It's kind of like jumping out of a pool with a couple sharks and into a pool with a dozen piranhas.
During the housing boom, when home sales were hitting records for five consecutive years and prices were soaring, many homeowners tapped the rising value of their homes to finance increased spending by taking out home equity lines of credit.Hey, heaven forbid people start spending within their means. Let's increase spending even though we aren't increasing income. Let's fuel big companies by borrowing more money. Here's a question, brilliant economists: What are we supposed to do after the home equity has dried up and the credit cards are maxed out? How exactly will we still be fueling economy when we're all freaking broke and three-quarters of our paychecks are getting sucked up by interest charges?
However, now that home sales are plunging and double-digit increases in housing costs are a thing of the past, home equity lines of credit have become less available. That has pushed consumers back to credit cards to finance their spending.
Analysts are watching closely to see if the steepest slump in housing in 16 years could have a more serious impact on the economy through the wealth effectI had no idea what the wealth effect was so I looked it up.
One problem, home values don't make you more or less wealthy unless you plan on selling the house and living on the street. Instead we get this "perception" of wealth by letting people take out loans.
the fear is that falling home values could cause consumers to cut back on their purchases. Since consumer spending accounts for two-thirds of total economic activity, any serious cutback in spending could lead to much slower economic growth.GOOD! Fear? Are these experts idiots? How does it help our economy if we're all broke! People need to start paying off their debts and living within their means. Then when they have real capital they can go spend it.
FRB G.19 Release