Household Debt At Historical High

Household_debtMarketWatch looks at consumer debt and determines that, despite record highs, its not a problem — yet:

"Low interest rates have spurred enormous borrowing by U.S. households. So much so that Americans are devoting a larger share of their disposable income to interest payments today than at the start of any tightening cycle over the past quarter-century."

Note that on 1985, the last peak in household debt, we were at a very different place int he Market cycle — namely, in year 3 of an 18 year bull run. I doubt that anyone (other than Don Hays) wants to argue that 2005 — the third year of the Bull dating back to October 2002 — is similarly situated.

Excerpt from MarketWatch:

"Not since the late 1980s has household interest declined as a share of income. That was a period of record job creation and income growth. We are in a very different place today. American households are leveraged to the hilt — or at least (do households have hilts?) more than they’ve ever been. And households are more vulnerable to rate hikes than previously.

Mortgage interest accounts for more than two-thirds of household interest payments. Adjustable rate mortgages are far more common than at the start of the last Fed tightening [BR: Idiots]. Even a modest increase in U.S. interest rates could result in substantial increase in default rates. Banks historically respond to higher defaults by tightening credit standards, which reduces income growth, which pushes interest payments up relative to income — a vicious cycle.

But irrational exuberance, or outright economic distress, often is the motivation for credit card indebtedness. Credit card interest rates haven’t come down much, yet this type of debt has risen more than mortgages."

Why does this matter? Consider which is more significant to a family’s ability to spend — their interest rate, or the percentage of household income which that rate consumes. From a macro-perspective, low rates are irrelevant if the family budget has that much less disposable income left over. 

Consider this bit of rocket science: Credit card indebtedness has risen more than mortgages (Jeesh, that’s just unbelievable . . .)

The silver lining is that "household debt is not historically high relative to household assets. From a balance sheet point of view, things look much better." The risk is a decrease in the value of those assets, i.e., Real Estate prices drop as interest rates tick up.

If things turn sour, this will make the trough that much worse . . . 

Household debt at historical high
By Peter Brimelow & Edwin S. Rubenstein,
MarketWatch 12:01 AM ET March 21, 2005

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Wsj_radio03172005202250Here’s something enormously gratifying:  A front page WSJ article about why Radio sucks.

The reporter even got the cause & effect right. Satellite  and iPod’s successes came about because Radio was so bad. Even my whipping boy, The 1996 Telecommunications Reform Act, catches blame. You can also see the impact of the Wired article (mentioned here earlier in the month) on the overall flavor of the piece.

While I place a lot more emphasis on the actual reasons for the migration away from radio, this piece is very much in the Big Picture spirit. As someone who has been kvetching about this for years, I am very pleased to see this front page WSJ coverage.

One thing I note as missing is a discussion of the long term generational effect, and the threat to a possible radio recovery: Since 1996, radio’s decay has led to an entire generation of listeners who have essentially written off radio (at least, when it comes to music).

The other key issue: Radio as a source of new music, and its relationship to the labels. (Not really discussed). It used to be part of the draw — a relationship with a trusted DJ who plays music you like, combined with introducing you to new songs (trust is the key component in granting someone taste-maker status).   

I do not see how merely imitating the iPod’s shuffle feature will do the trick. Walk along the beach this summer — there are hardly any radios blaring — a peaceful easy feeling eerie quiet, and lots of white headphone cords.   

We discussed the The Hamburger Helper Effect previously. What will undo a complete shift of media consumption habits of an entire generation of listeners? Can the broadcast industry recapture these lost ears? (I dunno). If they can, then what will they have to so in order to bring back their lost audience?

1) Is it
even possible; b) how they might accomplish that trick?

I’m not sure that anything short of a massive unwinding of radio concentration, and a return to local managers, program directors, DJs and playlists will undo the damage. Even then, you have to win back the listeners who felt betrayed and abandoned. 

The 1996 Telecommunications Reform Act provides us with yet another example of the law of unintended consequences . . .



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