The 2009 consumer crash

A sobering read from Karl Denninger at The Market Ticker:

The 2009 "Consumer Crash" Call is UNDERSTATED
I was directed this morning to a lovely article over at The Prudent Bear calling for a 2009 "Consumer Crash".

It is full of charts and documentation, and I strongly suggest you read it. All of it. It should in fact be required reading for our political entities and every high school student in the nation, along with every literate adult.

It is very heavy on charts and statistics, some of which I am going to unabashedly quote, and expand on.

Yes, expand on.

Here's the first pair:


Click for full size.
Now this looks very bad, but in fact it is much worse than it looks. Why? For the same reason the rest of these charts are worse than they look - they portray averages, but not distributions.

And it is the latter - distribution - that is the real problem.

See, there are a very large number of people - perhaps much as 25% of America, that have no debt at all. Not even a car loan. I'm one of them, and in fact this has been, in the main, my viewpoint since I was a youngster.

Yes, I've had car loans and mortgages, but I never was one to run a credit card balance or charge plate at a store. Ever. There are quite a few people like me, some of them older, some younger, but not everyone is in debt up to their eyeballs.

This may sound encouraging. In fact, its not. Its quite discouraging, and seriously so, because for every person who is prudent, there is one who is doubly underwater to the degree depicted in the graph.

The impact of this will not sink in until you think about it. There are plenty of people, including those on Kudlow every night, who try to claim that "the consumer's debt load, while rising, is manageable."

They're looking at this same graph you are above, and while they are alarmed, they're saying "oh, yes, its a bit over 1x income, but that's not horrible given that debt service is in the low teens as a percentage."

What they're missing is that there is 20% of our population that is being utterly smashed, with debt to income ratios north of 300% and total debt service requirements in the 60% range or more!

Jen and I are into maintaining as little debt as possible -- we have credit cards and use them but the balance is paid off each month. We went into debt to buy the building that our store is in but that was paid off as soon as we could. The next few years are going to be interesting for people but I hope that they take the hard lesson to heart and rebuild on a stronger footing next time.