EconomicCrisis.US

In the early days of the credit crisis, a few of us on Wall Street and in the media, myself included, worried that the imminent blow to the markets and economy would come, not from mortgage-related debt, but corporate debt, specifically the debt used to finance the private-equity buyout boom.

We were definitely wrong about the timing, but there’s mounting evidence we were right about the problem.

The debt piled on companies amid the decade’s $1 trillion buyout boom is coming due. The only question is about the extent of the fallout. The day of reckoning could simply be disruptive for the parties involved, or it could bring down the whole economy in much the same way bad mortgages broke confidence in the credit markets, effectively grinding them to a halt.
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Global imbalances — roughly defined, the different emphasis the world’s leading economies place on savings, spending and debt — is a phrase much used and little acted upon.

Well before the current financial crisis began, world leaders pledged to address this disconnect. At an International Monetary Fund meeting in 2007, for instance, representatives of the United States and the European Union agreed they should change economic incentives to encourage more savings and less spending; officials speaking for China, Japan and Germany, meanwhile, pledged to take steps to encourage spending. At the end of the day, nothing much happened, and these imbalances helped grease the skids for the global decent toward the economic abyss.
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What is $1.42 trillion? It’s more than the total national debt for the first 200 years of the Republic, more than the entire economy of India, almost as much as Canada’s, and more than $4,700 for every man, woman and child in the United States.

It’s the federal budget deficit for 2009, more than three times the most red ink ever amassed in a single year.

And, some economists warn, unless the government makes hard decisions to cut spending or raise taxes, it could be the seeds of another economic crisis.

Treasury figures released Friday showed that the government spent $46.6 billion more in September than it took in, a month that normally records a surplus. That boosted the shortfall for the full fiscal year ending Sept. 30 to $1.42 trillion. The previous year’s deficit was $459 billion.
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Just call it “the sound of no cards swiping.” Americans are keeping their credit cards in their wallets. Balances on U.S. consumer credit cards in August fell at a 5.8 percent annual rate, or by $11.98 billion, the U.S. Federal Reserve announced Wednesday. It was the seventh consecutive monthly decline in consumer credit — a pattern that’s consistent with both the frugal-consumer trend in the U.S. and banks’ decisions to lower, or in some cases eliminate, credit lines in the wake of the financial crisis.

Economists surveyed by Bloomberg News had expected August card use to contract by $8.5 billion. Revised figures for July showed consumer credit plunged a bit less, by $19 billion, than the originally reported $21.6 billion. In August, total outstanding consumer credit, including revolving and nonrevolving credit, declined at a 5.8% annual rate, or by $11.98 billion, to a seasonally adjusted $2.46 trillion, the Fed said.
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