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'Paltry' is a Laughable Distinction

By: Richard Daughty, The Mogambo Guru - The Daily Reckoning


-- Posted Sunday, 21 October 2007 | Digg This ArticleDigg It! | Source: GoldSeek.com

The news in the housing market is bad and getting worse. For example, JMR Steve in La Paz sends a link to a National Public Radio broadcast, which opened with the news that "Foreclosures in the U.S. are at their highest levels in 50 years."

To deal with this, NPR goes on to report that "President Bush and members of Congress have appealed to the mortgage industry to lower rates, and the industry says it is working with struggling homeowners. But housing advocates say the response has been paltry" and that, additionally, "Now, the top prosecutors in 37 states are putting more direct pressure on lenders."

Hahaha! No kidding? Hahahaha! A bank loans some underpaid loser too much money to buy too much house, on which the bank will make some minimal profit even if he manages to pay the mortgage, and now the government wants the bank to take a loss to bail him out? Hahaha! And the response has been "paltry"? Hahaha!

But not even the downturn in the housing market can deter spending-addicted Americans, as I gather from an article sent to me by JMR John H. from the Baltimore Sun that said that, "As growth in home equity balances has fallen almost to zero, credit-card balances have increased at a 17 percent annual rate over the past six months, according to a report by Merrill Lynch economist David Rosenberg." And the trend, he writes, "is clearly accelerating" and in contrast, "A year ago card balances were shrinking."

So now that home equity loans are not available to tap because equity is not being created, people are reverting to charging their excessive demands for instant gratification on their credit cards? I yelp in horror!

And it must be true, as I get the same news from the AP news service, "Consumer Borrowing Jumps at Fastest Pace in 3 Months, Led by Higher Use of Credit Cards". The sorrowful details are that "The Federal Reserve reported that consumer credit rose at an annual rate of 5.9 percent in August, the biggest increase since a 7.9 percent jump in May. Consumers have boosted their borrowing at the fastest pace in three months, turning increasingly to their credit cards to replace home equity loans as a source of ready cash."

As a guy who wants to be a writer (since it does not involve any heavy lifting, regular hours or social skills), but who can't get a real job making real money writing real copy for a real newspaper or real news service like the AP, I naturally get a Big, Big Bang (BBB) out of being able to leap to my feet and scornfully shout "Wrong, AP! You don't know what in the hell you are talking about! It ain't cash at all! It's debt, you stupid freaking morons!"

I know that nobody is going to ask me what I mean by that, so I will explain, unbidden, that when you spend cash, you exchange cash for stuff, and you end up with goods and services, but poorer as the tradeoff. In short, no continuing liabilities.

When you spend borrowed equity or borrowed money, on the other hand, you end up with the goods and services AND a new debt that will haunt you and haunt you until you wake up screaming and tearing your hair in frustration!

Applying my Fabulous Mogambo Economic, Financial And Composition Skills (FMEFACS) to this ugly fact, the sentence should really read, "Consumers have boosted their borrowing at the fastest pace in three months, turning increasingly to their credit cards to replace home equity loans as a source of ready debt that is already so big that it is bankrupting them, and by so much that they have to constantly take on new debt, more and more debt, just to live day to day, since they don't have any freaking money to buy anything because their money is all being used to make the minimum monthly payment as it is!"

Naturally, I assume that the AP will soon be calling me on the phone to thank me for helpfully pointing out their stupidity, and offer me a fancy-pancy job at a huge, huge salary. While we wait, I will point out that, in total, consumer credit rose by $12.2 billion in August, taking that source of debt to a mind-boggling record $2.469 trillion, which is a staggeringly lot of debt, and makes me note with alarm in my Brave, Manly Mogambo Voice (BMMV) to disguise my petrified Squeaky Mogambo Voice (PSMV) that there are only 100 million people in America who have a non-government job, and thus there are only 100 million people who can produce a profit by their labors.

The significance of this is that each one of these 100 million American workers has to be productive enough to generate $24,690 (to eventually pay the current debt), plus the interest charges on any unpaid balance until such time as it is paid, even if nobody ever incurs another dime of debt. Which they, unfortunately, will. We're freaking doomed!

Hey! The phone is ringing! This could be it!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.


-- Posted Sunday, 21 October 2007 | Digg This Article | Source: GoldSeek.com


Visit The Daily Reckoning's website.



 



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