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Debt Relief: You’ll pay for the bank’s subprime mistakes

Posted January 16, 2008

"The news is not yet official. Maybe the NYT is jumping the gun. But evidence from chain stores, credit card companies and consumer confidence surveys all points in the same direction - down." — Bill Bonner.

Popular Daily Reckoning contributor Bill Bonner sent out this insightful and entertaining article today. Bill discusses the real reason we may have double-digit inflation in the next few years, and I thought you'd find the commentary on the current U.S. market situation illucidating. You can find the article here or read on for more.

by Bill Bonner 

Baltimore – (TFN):  Finally, the headline we've been waiting for: "Americans cut back sharply on spending," says the New York Times.

The news is not yet official. Maybe the NYT is jumping the gun. But evidence from chain stores, credit card companies and consumer confidence surveys all points in the same direction - down. "At every level of American society," says the NYT, "from working class to the wealthy, people are spending less money."

December was a "blood bath" for retailers, the paper continues, because consumers are worried about a coming recession. They're afraid to open their wallets, for fear that the few dollars they have left may be hard to replace.

So far, reports show earnings to be holding up, but jobs are disappearing. Even on Wall Street - or maybe, especially on Wall Street - the days of easy employment and easy money seem to be behind us. Citigroup, for example, says that it will lay off 24,000 workers this year…as it tries to recover from losses (write-offs) of about $24 billion.

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Of course, the fall-off in consumer spending looked inevitable to us. When house prices peaked out, we wondered how long consumers could continue spending money they didn't have on things they didn't need. The answer: longer than we thought.

But now, the unavoidable seems to be happening: the NYT says so. And if the cut back continues - as also seems inevitable - the result will be an economic slump.

How bad? How long? Those who know the answers to those questions do not write financial opinions. We doubt they breathe.

What we know now is what we have known all along. At the end of the credit expansion - especially one as irrationally exuberant as the one we've just lived through - there is Hell to pay. People do not like paying their debts to the devil. Instead, they seek ways to duck and dodge…or lay the cost onto someone else.

Read on here to learn how those profligate spenders, the banks and mortgage lenders, are passing their financial obligations on to you and how much you may have to pay to make up for their unbridled accumulation of debt.

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Posted by Bill Bonner · Filed Under US Stocks and Markets 

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