Thursday, June 08, 2006

Charge It Nation...

This recent Forbes article speaks to an issue near and dear to my heart the creaking of the American Financial system under the weight of mountains of consumer debt.

"Americans increased their borrowing in April at the fastest pace in 10 months as credit card spending and auto loans both picked up.

The Federal Reserve reported Wednesday that consumer borrowing rose at an annual rate of 5.9 percent in April, a significant increase from a tiny 0.8 percent gain in March.

The increase in dollar terms was $10.6 billion, which pushed total consumer credit to a record $2.17 trillion. The Fed's measurement of consumer credit does not include mortgages and other loans secured by real estate.

Economists are predicting that consumer spending, which accounts for two-thirds of total economic activity, will slow in coming months as gasoline costing around $3 per gallon leaves consumers less to spend in other areas."

I would disagree with the last point. I argue that $3 gas is actually a cause of more consumer debt purchases. Who fills up a car at $3/gallon with cash? Not I. Also, I argue that the pending collapse of the real estate market will sap any excess consumer spending.

The best real estate advice I ever received was from a banker at my first job in NJ "Take the other side of whatever Trump is doing". For the record Trump is building like a madman right now.

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