Credit Card Spikes
impactnow
5/25/2011 1:14:25 AM
The spike could be dangerous if people are using their cards to supplement their income with rising food prices, and fuel prices.The spike may signal people using their credit cards to get by since we haven’t seen an improvement in consumer income since the recession hit. The default down turn maybe temporary…
An interesting case is China, where we see inflation in limited sectors due to the relative availability of credit vs. wage-based cash flow. The IMF M2 measure, which is the amount of money in circulation plus bank deposits, is up 52% in the past two years.
More defaults expected then. Right?
Bullseye
5/24/2011 1:38:28 PM
I'm betting that defaults will increase going frorward. I'm wondering when a credit card company charges off bad debt if the default numbers are accurate.
Ice,
right you are!!!
Just wanted to add one more thing-People do unbeleievable things when they are desperate.
Regards
Ashish.
Re: Now in a major Deflationary phase...
back2basicz
5/24/2011 10:37:09 AM
Scott,
Nice and brief summary on Inflation/Deflation dynamics at play here.
Very few people appreciate or understand what a Credit bubble bursting looks like and the effect it has on Asset Values.
Or for that matter what happens when a country is swamped under a massive debt load.
People need more understanding on the dynamics at play here[I am sure your on the case right now!!!]
Regards
Ashish.
Re: Now in a major Deflationary phase...
back2basicz
5/24/2011 10:34:22 AM
Scott,
There is a lot of stuff written on this Deflation Issue by a favorite writer of mine-Mike Shedlock.
You can read his articles on this issue here
http://globaleconomicanalysis.blogspot.com/2009/11/is-debt-deflation-just-beginning.html
http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html
http://globaleconomicanalysis.blogspot.com/2009/04/deflation-has-gone-global.html
http://globaleconomicanalysis.blogspot.com/2011/05/housing-adjusted-cpi-gold-and-deflation.html
Our editor-Scott also raises some interesting points in a post above.
The thing is that there is no doubt that Asia is seeing Inflation(and that too on a massive scale).
But in the case of America where we are currently seeing the total collapse of the Shadow banking system(inspite of various attempts by the Fed to prop up the system);things are not so clear.
Lets wait and watch for atleast a couple more years before we decide for sure that this transistory spike in CPI numbers proves to be something lasting or just another wave in the Deflationary bandwagon which is going on since 2008.
Credit needs to expand and expand bigtime if we are to see real Inflation-No doubts about that.So far that is'nt happening(not by a long-long shot).
Regards
Ashish.
that the use of Credit cards us soiking because people don't have the cash to purchase things and are turning to their credirt cards to offset what they don't have. Its a dangerous situation, but people will do what they have to do to survive.
Re: Now in a major Deflationary phase...
Scott Raynovich
5/23/2011 6:20:27 PM
You've given me a good idea for a blog post.
There are really three dynamics in inflation/deflation:
* An explosion of debt and leverage later led to the collapse of leveraged-assets, which caused the financial crisis. Bank credit is still declining. Therefore, any item that require heavy financing (housing, construction, automobiles, e.t.c.), still has a hard time finding buyers. Prices in housing is still stagnant or declining. Total bank credit is still contracting. This is deflationary.
* The China Factor. One reason that the Fed can say that "Inflation is low" is because of a proliferation of lower-cost goods from China. This is the famous "you can't eat an iPad" conundrum. This phenomenon was easily seen at WalMart. However, this might be changing as inflation pressures China and their labor costs increase.
* Classic monetary inflation. The Fed has been fighting the predominant deflationary effect (leveraged assets like housing collapsing) by printing money and injecting it into the system. This, in itself, is inflationary. But like many past Fed policies, it is not a surgical tool. The "hot money" flows to wherever traders want to use it -- for example soybeans, oil, gasoline, precious metals. It doesn't appear to be helping housing, though.
So, yes, inflation is growing in the general economy for basic items that don't reqauire serious financing (food, gasoline), but it has not yet returned to the leveraged-asset economy (known by many as the "Shadow Banking System"). The biggest problem -- housing and construction -- is still in a deflationary mode because bank credit is shrinking (almost all data I have seen shows bank credit is still shrinking).
Re: Now in a major Deflationary phase...
Scott McCaig
5/23/2011 5:44:36 PM
Ashish,
Deflationary? What I'm seeing the last several months for the CPI (year over year) is:
Sep 1.1%
Oct: 1.2%
Nov 1.1%
Dec 1.5%
Jan 1.6%
Feb 2.1%
Mar 2.7%
Apr 3.2%
Is that not going *up*? What am I missing?
Thanks Ashish
I think you're right about the ultimate impact on balance sheets. I was just noticing today that 43 banks have already failed this year. There were three failures late Friday, including a pair in Georgia that cost the Federal Deposit Insurance Corp. an estimated $445 million.
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