Greenspan Comments

bpj · 11-21-2002

http://www.elliottwave.com/club/newsmax.htm

If they don't have any savings, and their debt nearly matches their income, WHERE do consumers keep getting the money to consume? Alan Greenspan heard the question, and gives a mind-boggling answer....

I wish I had a dollar for each time over the past two years that I've heard someone say, "Consumer spending has kept the economy afloat." I could probably pay off my mortgage.

And while conventional wisdom that's repeated with mind-numbing frequency is rarely true, this is an exception. Consumer spending very likely HAS stimulated the economy for the past two years.

Still, here's a question that has bugged me: Where are consumers getting the money? I ask this for a couple of simple reasons.

First, personal saving has fallen to measly levels ? around 3% of disposable income during the past four years. This is less than half the percentage from a decade ago, in fact the lowest level in nearly 70 years.

Second, consumer debt has reached 90% of personal income (double the percentage since the 1950s). In case you're into big numbers that's a total consumer debt of $1.733 trillion, not including mortgages or equity lines of credit.

So: If they don't have any savings, and their debt nearly matches their income, WHERE do consumers keep getting the money to consume?

The answer came on November 13, in public remarks from someone who has pretty reliable numbers, and who (so I've read) spends much of his time studying those numbers.

"According to survey data, roughly half of equity extractions are allocated to the combination of personal consumption expenditures and outlays on home modernization .... the extraction of equity from homes has been a significant support to consumption during a period when other asset prices were declining sharply. Were it not for this phenomenon, economic activity would have been notably weaker in the wake of the decline in the value of household financial assets."

So THAT'S what's up with the tens of millions of mortgage refinancings we keep hearing about. Mr. & Mrs. Homeowner are cashing out big-time equity. (Funny how debt is called "cashing out," isn't it?) In turn they become Mr. & Mrs. Consumer; add a new room to the house; then fill the new room full of new stuff from the mall.

This is all for the good, mind you, at least according to the person who made the above remark ? "a powerful stabilizing force" were his words. Refinancing is good; cashing out is better; new stuff from the mall is better still. And as you may have figured out from the prose style, the gentleman who said all this (and more) is Alan Greenspan in his testimony to Congress.

This ends us up where I began, and then some. Consumer spending is good because it "keeps the economy afloat," so rising levels of debt must be good too.

Maybe so. Consumers have borrowed & borrowed and spent & spent for years. It's just that in the same month that debt increased (September), personal consumption declined for the first time in 10 months.

And while this contradiction in the monthly data is worth watching, another one looms much larger. Record levels of consumer spending in recent years have not produced the effect that economics textbooks say should follow: Inflation. If anything, signs of a mild DEFLATION are everywhere. And if consumer spending finally does exhaust itself, "mild" will not be the right word for the deflation that follows.

Is there a limit to the refinancings, the cashing out, the number of new SUVs packed with stuff from the mall? What happens if consumers reach that limit?

ACHdebit.com - NOBODY does 'em better!

ulfie · 11-21-2002

I know a couple that refinanced and paid off all their CC debt in the process. I tried to explain to them that the toaster they bought on their CC is now being paid off over 15 years. They didn't seem to understand, all they know is all the CC bills are paid and they can buy more stuff now.

Peaches · 11-21-2002

Quote:

Originally posted by bpj@Nov 21 2002, 11:53 AM
I wish I had a dollar for each time over the past two years that I've heard someone say, "Consumer spending has kept the economy afloat." I could probably pay off my mortgage.

Is this Alan Greenspan talking? Please tell me I'm misunderstanding that Alan Greenspan has a mortgage

Quote:

I tried to explain to them that the toaster they bought on their CC is now being paid off over 15 years.

In reality, if they were making minimum payments on their CC, it still would have probably taken them 15 years to pay off their toaster - at a higher, non deductible interest rate. Of course, now they can lose their home if they don't make the payments, instead of just getting calls from annoying collectors

Dianna Vesta · 11-21-2002

Keep overhead low. That's my motto so that when times get tough you know you can still pay your mortgage.

Don't use credit when income is low. If you can't afford it, don't buy it. This may not for the economy but it works for me.

I miss making cash. That's the only thing that sucks about working online.

Vick · 11-21-2002

Quote:

I miss making cash. That's the only thing that sucks about working online.

Are you paid in sexual favors by your slaves? :P

ulfie · 11-21-2002

I'm a big believer in investing in real estate. If I ever have financial troubles at least I have something to borrow against without having to sell assets. The added bonus is most of my properties generate income as well.

Vick · 11-21-2002

Funny you should post that Ulfie
Reading this thread I thought about you and your investment properties

... nothing like a 15 year toaster payment :P

Dianna Vesta · 11-21-2002

Quote:

Originally posted by Vick@Nov 21 2002, 11:50 AM

Quote:

I miss making cash. That's the only thing that sucks about working online.

Are you paid in sexual favors by your slaves? :P

Lol- funny

I don't see clients and these days have little patience for male slave. I also don't have time. I'll get to it tho.

Right now it's about money and careful planning. I'll take out my own trash until I can pay someone to do it for me.

ulfie · 11-21-2002

Quote:

Originally posted by Vick@Nov 21 2002, 12:13 PM
Funny you should post that Ulfie
Reading this thread I thought about you and your investment properties

... nothing like a 15 year toaster payment :P

Yeah, it's not a good thing when your $30 toaster ends up costing $300 because of all the interest. Some people just don't seem to understand that though.

11-21-2002	#1
bpj Members Join Date: Oct 2002 Posts: 141	http://www.elliottwave.com/club/newsmax.htm If they don't have any savings, and their debt nearly matches their income, WHERE do consumers keep getting the money to consume? Alan Greenspan heard the question, and gives a mind-boggling answer.... I wish I had a dollar for each time over the past two years that I've heard someone say, "Consumer spending has kept the economy afloat." I could probably pay off my mortgage. And while conventional wisdom that's repeated with mind-numbing frequency is rarely true, this is an exception. Consumer spending very likely HAS stimulated the economy for the past two years. Still, here's a question that has bugged me: Where are consumers getting the money? I ask this for a couple of simple reasons. First, personal saving has fallen to measly levels ? around 3% of disposable income during the past four years. This is less than half the percentage from a decade ago, in fact the lowest level in nearly 70 years. Second, consumer debt has reached 90% of personal income (double the percentage since the 1950s). In case you're into big numbers that's a total consumer debt of $1.733 trillion, not including mortgages or equity lines of credit. So: If they don't have any savings, and their debt nearly matches their income, WHERE do consumers keep getting the money to consume? The answer came on November 13, in public remarks from someone who has pretty reliable numbers, and who (so I've read) spends much of his time studying those numbers. "According to survey data, roughly half of equity extractions are allocated to the combination of personal consumption expenditures and outlays on home modernization .... the extraction of equity from homes has been a significant support to consumption during a period when other asset prices were declining sharply. Were it not for this phenomenon, economic activity would have been notably weaker in the wake of the decline in the value of household financial assets." So THAT'S what's up with the tens of millions of mortgage refinancings we keep hearing about. Mr. & Mrs. Homeowner are cashing out big-time equity. (Funny how debt is called "cashing out," isn't it?) In turn they become Mr. & Mrs. Consumer; add a new room to the house; then fill the new room full of new stuff from the mall. This is all for the good, mind you, at least according to the person who made the above remark ? "a powerful stabilizing force" were his words. Refinancing is good; cashing out is better; new stuff from the mall is better still. And as you may have figured out from the prose style, the gentleman who said all this (and more) is Alan Greenspan in his testimony to Congress. This ends us up where I began, and then some. Consumer spending is good because it "keeps the economy afloat," so rising levels of debt must be good too. Maybe so. Consumers have borrowed & borrowed and spent & spent for years. It's just that in the same month that debt increased (September), personal consumption declined for the first time in 10 months. And while this contradiction in the monthly data is worth watching, another one looms much larger. Record levels of consumer spending in recent years have not produced the effect that economics textbooks say should follow: Inflation. If anything, signs of a mild DEFLATION are everywhere. And if consumer spending finally does exhaust itself, "mild" will not be the right word for the deflation that follows. Is there a limit to the refinancings, the cashing out, the number of new SUVs packed with stuff from the mall? What happens if consumers reach that limit? ACHdebit.com - NOBODY does 'em better! __________________ ] ]

11-21-2002	#2
ulfie Members Join Date: Oct 2002 Posts: 1,143	I know a couple that refinanced and paid off all their CC debt in the process. I tried to explain to them that the toaster they bought on their CC is now being paid off over 15 years. They didn't seem to understand, all they know is all the CC bills are paid and they can buy more stuff now. __________________

11-21-2002	#4
Dianna Vesta Members Join Date: Oct 2002 Location: South Florida Posts: 2,087	Keep overhead low. That's my motto so that when times get tough you know you can still pay your mortgage. Don't use credit when income is low. If you can't afford it, don't buy it. This may not for the economy but it works for me. I miss making cash. That's the only thing that sucks about working online. __________________ Live radio and audio downloads have a definite place in marketing and promoting products. Not only will it capture new customers but it is an excellent way to promote new products to existing customers continuing to build good customer relationships. Click here for more info

11-21-2002	#6
ulfie Members Join Date: Oct 2002 Posts: 1,143	I'm a big believer in investing in real estate. If I ever have financial troubles at least I have something to borrow against without having to sell assets. The added bonus is most of my properties generate income as well. __________________

11-21-2002	#7
Vick Celebrating Company's Success with A Beer From Mini Bar Want to see your own Advertising Here! Join Date: Oct 2002 Location: Little South of Sanity Posts: 6,551	Funny you should post that Ulfie Reading this thread I thought about you and your investment properties ... nothing like a 15 year toaster payment :P __________________ Pssst Click the Button Above I once wanted to be a Gynecologist But I couldn't find an opening