State Of Debt Q4/2010: Plus A Beefy Dose Of Wall Street Journal Propaganda

03-11-2011 • Market-ticker.org

The Fed Z1 came out yesterday to much lying in the mainstream media. Among the amusing tales of nonsense was this piece in the Wall Street Journal: But consumer debt, such as auto and student loans, has started growing again in recent months, suggesting that people might be getting in the mood to borrow again. No it hasn't. The only place it has grown is student debt. I wrote on that the other day. The not-amusing part of this picture is that student loans, the only growing part, have been rendered non-dischargeable (except in extraordinary circumstances) in bankruptcy. The banks and schools (along with government) claim this is "necessary" since most students have little in the way of assets and would otherwise be judgment-proof. The obvious reply is that an education that can't be cash-financed by the student when he or she is graduating into an uncertain world with uncertain prospects, which is always true, should never be financed with debt because it is a high-risk venture to begin with. Therefore, the rate of interest should be very high - if loans are available at all. The truth from the Z1 is that we're back in "serious bubble" territory. And the sector chart of where debt is being taken on isn't pretty at all. The key remains federal expenditures. So long as the Federal Government can keep the overall slope rising without the bond market throwing up or a commodity price ramps causing revolutions in too many "sensitive" places they may get away with this for a while. But without any evidence that the private economy can or will step back in to increase its own leverage, and equity market leverage ratios standing well out on the plank, it only takes a bit of weakness for that plank to snap and send us down a few hundred floors to a sudden deceleration event. We're approaching the wall at 120mph and the front window is covered with bug guts from all the central bank, government and media lies that have splattered against it over the last two years. Fastening your seat belt is strongly recommended.