Allen L Roland

America is living on borrowed time as the credit clock time bomb approaches midnight. The Obama administration still doesn't get it with its top down stimulus plan ~ Americans are in survival mode. They are broke, their credit cards are maxed out, they only spend for necessities wherein food and rent take precedence over credit card purchases or payments: Allen L Roland

The Obama administration is still trying to reinflate the credit bubble that just burst with the same cast of characters who initially inflated it ~ and it is about to blow up in their face.

On June 30th, 2008 I wrote a column HUGE CREDIT CARD CRISIS NEXT FOR AMERICA in which I said that many Americans are living off their credit cards but be forewarned ~ that bubble is about to burst as more Americans are using high-interest credit card cash to pay at least part of their mortgages. http://blogs.salon.com/0002255/2008/06/30.html

Well, that bubble has obviously already burst as Mike Whitney confirms in ICH ~ " The economy is flat on its back and hemorrhaging a half a million jobs per month. The housing market is crashing, retail sales are in a funk, manufacturing is down, exports are falling, and consumers have started saving for the first time in decades ~ Consumers have shut their wallets, locked their purses and are refusing to take on any more debt ~ Consumers have reached their saturation point and they are not budging. It's the end of an era ~ our decades-long spending-spree is over and people will be looking for ways to live more modestly, pay-as-they-go and avoid red ink. This is good news for the economy's long-term strength, but bad news for short-term recovery." http://informationclearinghouse.info/article22796.htm

All this nonsense about a second half recovery this year is just wishful thinking. The reality is that credit card delinquencies are rising dramatically ( over 11% ) which indicates that consumers are using tax refunds to pay for essential day to day expenses versus non-essential spending and do remember that 70% of GNP is consumer spending ~ which is drying up rapidly.

Here's the credit time bomb, which is actually more like a death spiral, according to CNN Money.com ~ " The economy is losing jobs by the thousands, and mass layoffs and pay cuts have continued the credit crunch. Banks have tightened lending standards because of a heightened default risk, providing less credit to consumers."
http://snipurl.com/jsf1k

In other words, Banks are using stimulus money to pad their own balance sheets but, driven by fear of the recession, are providing less credit to consumers and corporations.

But it isn't just consumer debt that is out of control and feeling the credit crunch ~ The default rate on commercial mortgages held by U.S. banks may rise to the highest in 17 years in the fourth quarter for the very same reasons “The dramatic decline in real economic activity and labor markets since last September has undercut property fundamentals,” wrote Sam Chandan, chief economist of Real Estate Econometrics. The decline puts an increasing number of loans “at risk,” he said. Default rates likely will increase next year and in 2011 as five-year loans made in 2005 and later start to come due, Real Estate Econometrics said. Those mortgages were based on overly optimistic forecasts of income growth and inflated property values." http://snipurl.com/jsf31

But the biggest victim of the American debt crisis could well be the United States Treasury. As Martin Weiss writes in Money and Markets ~ " How can the administration possibly predict an economic turnaround when its own Treasury Department is sucking nearly $2 trillion in funds out of credit markets ~ the same credit markets that derailed the economy late last year? Similarly, how can the government predict a turnaround when its own borrowing frenzy is already driving up mortgage rates and undermining real estate, the one sector that's most responsible for the economy's decline in the first place?
Martin concludes by saying ~ " Beyond the $1.84 trillion of red ink projected for 2009 and beyond the trillions more in future obligations, the U.S. government has just assumed responsibility for nearly $14 trillion in new loans, commitments, and guarantees to bail out brokers, banks, insurers, auto makers, and the broader economy ~ If just one of these suffers greater-than-expected losses, we could see wave after wave of new demands on the government to honor its guarantees, bloating the deficit far further."
http://www.moneyandmarkets.com/the-biggest-victim-of-the-debt-crisis-34125

Within a decade the average household that pays income tax will owe the equivalent of $155,000 in federal debt, about $90,000 more than last year. And have you looked at interest rates lately? Back on March 18, the 10-year Treasury bond yield dropped as low as 2.54 percent. This week it went above 3.90 ~ a huge move in less than three months which effects everything from credit cards to mortgage rates.

So once again, America is living on borrowed time and those debts, which extend from individual consumer credit cards to the treasury itself, are about to explode. That explosion will move our current recession into a full blown depression ~ from which we will eventually emerge, chastened and hopefully enlightened.

So, is The United States Treasury too big too fail ? Here's a short video of the Austin Lounge Lizards singing on the concept of how do you get "Too Big to Fail ": http://www.youtube.com/watch?v=rnE5zvosplc&feature=channel_page

Allen L Roland
http://blogs.salon.com/0002255/2009/06/11.html

Alternative Press Online columnist and psychotherapist Allen L Roland is available for comments, interviews, speaking engagements and private consultations ( allen@allenroland.com )

Allen L Roland is a practicing psychotherapist, author and lecturer who also shares a daily political and social commentary on his weblog and website allenroland.com He also guest hosts a monthly national radio show TRUTHTALK on www.conscioustalk.net

Cartoon courtesy of Tom Toles / Washington Post

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Allen Roland’s weblog: http://blogs.salon.com/0002255/
Website: www.allenroland.com
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