Written By: Ingo Winzer, President of Local Market Monitor, Inc.
I've
been harping about consumer debt for a while now because I think it will cause
the next recession. It won't trigger it, that will be some unrelated event, but
all of a sudden people will realize they can't spend any more money. Here are
some facts. Adjusted for inflation, ordinary consumer debt - that is, not
including mortgages - is now $12,000 per man, woman and child in the US, up
from $4,000 in 1980. That's equal to 40 percent of income, mainly in the form
of credit cards and student loans. It used to be 20 percent.
The
problem I see is that banks - which formerly made their money from businesses
but now make it from consumers - have every incentive to encourage people to
borrow more and more. And politicians have every incentive to help the banks do
it.
With
no natural brake on the system, where will it end? When debt is 50 percent of
income, 80 percent? Or maybe it will never end and we'll have a larger portion
of the population spending less and less, while an ever-smaller, wealthier one
spends more and more. That would be a social and political disaster.
Jobs
in August were up 1.7 percent over last year. They were up 2 percent in
manufacturing, 2.6 percent in business services - the main driver for the
economy right now - 2 percent in healthcare, and 1.6 percent at restaurants.
Jobs in the retail sector struggled slightly higher after a disastrous year,
while jobs in government were again essentially flat.
Jobs
in the construction sector were up 4 percent. This may seem like a big deal,
but it's not. After a decade of empty homes and fewer people who can afford to
buy - and despite the new boom in California - the construction industry is
still smaller than it was ten years ago.
