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IPFS News Link • Economy - Economics USA

Denninger: Oh, So The "Recovery" Is About Delinquency?

So-called "struggling" homeowners who, despite being delinquent on their mortgage and in fact not having paid in over a year, are spending upwards of $1,500 monthly in places like Best Buy, hairdressers and tony clothing stores. The essential conundrum is this: Eventually, one way or another, these families will have to start making payments toward housing again. They may make those payments via their mortgage or they may be evicted and become renters but the money currently being blown on frivolities that is "propping up the economy" and leading to "strong consumer sales" is showing up there only because people are literally getting a free ride on their shelter costs. The perversions at play here are outrageous - not only are these "homeowners" living effectively for free (and since most mortgages have escrow accounts for property taxes, those aren't being paid either!) but in addition the banks, by not foreclosing, are holding defaulted loan paper on their books at dramatically above recovery value, thereby presenting a false view of their financial health. Yes, the retail sales numbers this morning were good. But how those numbers are being generated is important.