Sunday, November 2, 2008
Today I was looking at some 3rd quarter numbers and I started to wonder why they were not as bad as I expected. Where is all this spending coming from. Unemployment is way up, especially in California. Mortgage equity withdrawal is way down, down about 95% from over 200 billion per quarter in the bubble years to 9 billion last quarter. That's a lot of billions to take out of the economy yet sales only drop a tiny bit.
The second quarters numbers were helped by the "stimulation" package that uncle George and the Congrettes mailed out. But the 3rd quarter numbers are a little confusing. After all, stores are closing, companies are going belly up but the sales numbers are only down a few percent. What gives?
Poking around I think I have the culprit. People still have credit cards, and they are using them at an alarming rate. Credit card use is way up (WAY, WAY UP!). In addition credit card defaults are now starting to soar. It's looking more and more like those people that lived off home equity have now turned to credit cards. In addition the people being squeezed by the increasing cost of food and energy are also turning to plastic to make ends meet. I think we all know where this will end up. Like the equity fairly, the credit card fairly will eventually run out of magic pixy dust. Then the banks will get stuck with another round of defaults. These may be much smaller than the trillions lost on home loans, but when you are on life support already a tiny infection could mean the end.
What does this have to do with housing you ask? Know anyone paying the mortgage with credit cards? I do! That same person is paying credit card bills with other credit cards. How long can that last?
There's now talk about another stimulation package. That would help the numbers for another quarter but then what. What are the 4th quarter numbers going to look like or the 1st quarter next year. How long before the credit card users start to max out their cards and start defaulting in droves.
I hate to end this on such a pessimistic note so here's a picture of doggy saying it's bedtime prayers ;-)