FacebookTwitterGoogle+RedditEmail

Economic Roadkill

by MIKE WHITNEY

If you really want to know what’s going on with the economy,  you should take a look at the Fed’s Consumer Credit Report that was released on Thursday. Yes, it’s a real snoozer, but it does reveal the truth behind all the “recovery” hype. So, let’s cut to the chase: When unemployment is high and wages are stagnant, the only way the economy can grow is through credit expansion. That’s why economists pay so much attention to the credit report, because it lets them see if we’re making progress or not. Right now, we’re not making any headway at all. Of course, the cheerleading media see things differently. Here’s a clip from an article in Bloomberg that puts a positive spin on a truly dismal report:

“Credit increased $12 billion after a revised $11.3 billion rise in June, the Federal Reserve said today in Washington. Economists projected a $6 billion gain, according to the median forecast in a Bloomberg News survey. The rise in non-revolving loans was the most since November 2001.” (“U.S. Consumer Borrowing Rose by $12 Billion in July, Twice Amount Forecast”, Bloomberg)

Hooray!  The US consumer is off the canvas and borrowing again. Let the celebration begin!

Not so fast. The uptick in credit spending is entirely attributable to subprime auto loans and government-backed student loans, both of which are a mere extension of the same Ponzi-finance scam that put the global economy into cardiac arrest. Every other area of credit expansion is on-the-ropes. Commercial banks, finance companies, credit unions, savings institutions, nonfinancial businesses, and pools of securitized assets are all flatlining. No progress at all. In other words, the only way to induce tightfisted consumers to spend money they don’t have is by either seducing them with “No-down, easy-pay, 60-month-no-interest” financing or by hoodwinking them about the 6-figure income they’ll net after they finish their college education at Lunkhead U.

Case in point; check out this article on subprime auto loans in Reuters:

“Lenders are making more subprime auto loans again, reversing the cautious approach they adopted after the credit crisis, an industry research firm said on Tuesday. The portion of car loans made to subprime borrowers rose to 40.8 percent in the second quarter from 37.2 percent a year earlier, according to Experian Automotive, a unit of credit bureau and research firm Experian Plc.

The data shows how keen lenders are to boost their loan books amid a sluggish economy….

Average credit scores for borrowers declined and the average term for their loans extended by one month to 63 months on new cars and 59 months on used cars, according to Experian.

“We are continuing to see growth in subprime, both new and used, and loans are becoming looser,” Melinda Zabritski, director of automotive credit for Experian, said in an interview.

Executives at Ally Financial said in May that subprime car lending had become “very attractive” because profit margins on the loans more than cover the cost of expected losses from borrowers who fail to repay what they owe. Making the loans is part of Ally’s strategy to grow by lending on more used cars….

Industry veterans have said that while the loans have been attractive recently, more lenders are entering the market and competing for business by lowering prices, a trend that could lead to higher losses in the future.” (“Lenders making more subprime car loans: report”, Reuters)

Bigger profits off lower credit scores. Now where have we heard that load of malarkey before?

Can you believe it? I mean, we haven’t even paid for the last subprime meltdown, and we’re on to the next? Do you think a little regulation might be a good idea here, like maybe some standardized loans so the banksters running these loan-laundering operations don’t blow up the system again and come around begging for more bailouts?

Oh no, of course not. That would be an intrusion on the divine workings of the free market.

Bottom line: Yes, it is possible to boost credit if one is willing to lend gobs of money to anyone who can fog a mirror, but is that really an indication of “economic recovery” or just more proof that the system is staggeringly out-of-whack?

And then there’s the student loan biz, as big a fleecing operation as ever existed. This is where the real pros hang-out now, luring their prey with promises of hefty salaries after they graduate and then loading them up with enough debt to make their eyes pop out.   But, hey, let’s not forget the upside of all this chicanery; all that fleecing beefs up the Fed’s Credit Report and makes it look like the economy is bouncing back. That’s got to be worth something, right? And, besides, everyone is “doing it”; fleecing college kids, that is. Here’s an excerpt from an article in The Atlantic:

“How do colleges manage it? Kenyon has erected a $70 million sports palace featuring a 20-lane olympic pool. Stanford’s professors now get paid sabbaticals every fourth year, handing them $115,000 for not teaching. Vanderbilt pays its president $2.4 million. Alumni gifts and endowment earnings help with the costs. But a major source is tuition payments, which at private schools are breaking the $40,000 barrier, more than many families earn. Sadly, there’s more to the story. Most students have to take out loans to remit what colleges demand. At colleges lacking rich endowments, budgeting is based on turning a generation of young people into debtors.

As this semester begins, college loans are nearing the $1 trillion mark, more than what all households owe on their credit cards. Fully two-thirds of our undergraduates have gone into debt, many from middle class families, who in the past paid for much of college from savings. The College Board likes to say that the average debt is “only” $27,650. What the Board doesn’t say is that when personal circumstances go wrong, as can happen in a recession, interest, late payment penalties, and other charges can bring the tab up to $100,000. Those going on to graduate school, as upwards of half will, can end up facing twice that.”  (“The Debt Crisis at American Colleges,” The Atlantic)

Do you think these pillars of rectitude would ever dream of warning our kids that they might they might be getting in-over-their-heads, that they might want to reconsider what they’re doing so they don’t spend the rest of their lives trying to get out of the red?

Nah. It’s not my problem, they figure. Besides why rock the boat. If these kids ever figure out that they just flushed $100,000 down the latrine for a mid-level management job at Herfy’s that pays $22K per year with no-time-off, they might just go ape and torch our lovely new sports pavilion. We can’t have that, now can we?

Here’s more from another article in The Atlantic:

“Student loan debt has grown by 511% over this period. In the first quarter of 1999, just $90 billion in student loans were outstanding. As of the second quarter of 2011, that balance had ballooned to $550 billion.

How does the housing bubble debt compare? If you add together mortgages and revolving home equity, then from the first quarter of 1999 to when housing-related debt peaked in the third quarter of 2008, the sum increased from $3.28 trillion to $9.98 trillion. Over this period, housing-related debt had increased threefold. Meanwhile, over the entire period shown on the chart, the balance of student loans grew by more than 6x. The growth of student loans has been twice as steep — and it’s showing no signs of slowing.

Obviously the number of students didn’t grow by 511%. So why are education loans growing so rapidly? One reason could be availability. The government’s backing lets credit to students flow very freely. And as the article from yesterday noted, universities are raising tuition aggressively since students are willing to pay more through those loans.

All this college debt could put the U.S. on a slower growth path in the years to come. As Americans grapple with high student loan payments for the first few decades of their adult lives, they’ll have less money to spend and invest. All that money flowing into colleges and universities is being funneled away from other industries where it would have been spent in future years. Of course, this would be a rather unfortunate irony: higher education is supposed to enhance a nation’s growth, but with such an enormous debt burden, graduates might not be able to spend and invest enough to allow that growth to occur.” (“Chart of the Day: Student Loans Have Grown 511% Since 1999”, The Atlantic)

Anyway, you get the picture. Young people are just the latest subset of victims in Big Capital’s endless search for roadkill. No sense getting all huffy about it. But it does help to shed a little light on underlying condition of the economy vis a vis the Fed’s Credit Report.

Indeed, credit is expanding, but only in the areas where the sinister lifting of consumer protections (deregulation) has allowed finance vultures to do their dirtywork. As for the economy, it still stinks. But, then, you already knew that.

Mike Whitney lives in Washington state. He can be reached at:fergiewhitney@msn.com

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

More articles by:

CounterPunch Magazine

minimag-edit

Weekend Edition
September 23, 2016
Friday - Sunday
Andrew Levine
The Meaning of the Trump Surge
Jeffrey St. Clair
Roaming Charges: More Pricks Than Kicks
Mike Whitney
Oh, Say Can You See the Carnage? Why Stand for a Country That Can Gun You Down in Cold Blood?
Chris Welzenbach
The Diminution of Chris Hayes
Vincent Emanuele
The Riots Will Continue
Rob Urie
A Scam Too Far
Pepe Escobar
Les Deplorables
Patrick Cockburn
Airstrikes, Obfuscation and Propaganda in Syria
Timothy Braatz
The Quarterback and the Propaganda
Sheldon Richman
Obama Rewards Israel’s Bad Behavior
Libby Lunstrum - Patrick Bond
Militarizing Game Parks and Marketing Wildlife are Unsustainable Strategies
Andy Thayer
More Cops Will Worsen, Not Help, Chicago’s Violence Problem
Louis Yako
Can Westerners Help Refugees from War-torn Countries?
David Rosen
Rudy Giuliani & Trump’s Possible Cabinet
Joyce Nelson
TISA and the Privatization of Public Services
Pete Dolack
Global Warming Will Accelerate as Oceans Reach Limits of Remediation
Franklin Lamb
34 Years After the Sabra-Shatila Massacre
Cesar Chelala
How One Man Held off Nuclear War
Norman Pollack
Sovereign Immunity, War Crimes, and Compensation to 9/11 Families
Lamont Lilly
Standing Rock Stakes Claim for Sovereignty: Eyewitness Report From North Dakota
Barbara G. Ellis
A Sandernista Priority: Push Bernie’s Planks!
Hiroyuki Hamada
How Do We Dream the Dream of Peace Together?
Russell Mokhiber
From Rags and Robes to Speedos and Thongs: Why Trump is Crushing Clinton in WV
Julian Vigo
Living La Vida Loca
Aidan O'Brien
Where is Europe’s Duterte? 
Abel Cohen
Russia’s Improbable Role in Everything
Ron Jacobs
A Change Has Gotta’ Come
Uri Avnery
Shimon Peres and the Saga of Sisyphus
Graham Peebles
Ethiopian’s Crying out for Freedom and Justice
Robert Koehler
Stop the Killing
Thomas Knapp
Election 2016: Of Dog Legs and “Debates”
Yves Engler
The Media’s Biased Perspective
Victor Grossman
Omens From Berlin
Christopher Brauchli
Wells Fargo as Metaphor for the Trump Campaign
Nyla Ali Khan
War of Words Between India and Pakistan at the United Nations
Tom Barnard
Block the Bunker! Historic Victory Against Police Boondoggle in Seattle
James Rothenberg
Bullshit Recognition as Survival Tactic
Ed Rampell
A Tale of Billionaires & Ballot Bandits
Kristine Mattis
Persnickety Publishing Pet-Peeves
Charles R. Larson
Review: Helen Dewitt’s “The Last Samurai”
David Yearsley
Torture Chamber Music
September 22, 2016
Dave Lindorff
Wells Fargo’s Stumpf Leads the Way
Stan Cox
If There’s a World War II-Style Climate Mobilization, It has to Go All the Way—and Then Some
Binoy Kampmark
Source Betrayed: the Washington Post and Edward Snowden
John W. Whitehead
Wards of the Nanny State
FacebookTwitterGoogle+RedditEmail