by John Ward
Senator Warren’s Free Credit Freeze Bill is a well-meaning attempt to protect the private financial data of ordinary Americans. But nobody should underestimate Wall Street’s ability to pervert the well-meaning and turn it into a selling opportunity. In the context of President Trump’s ‘rollback’ legislation, frozen credit scores could well make unaffordable debt even more available…and create a feelgood factor to reelect The Donald in 2020.
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Lots of us out here in Realsville EU have been asking for some time how the heavily indebted and increasingly underpaid US consumer will be able to keep the neoliberal credit-fuelled consumption model of globalist capitalism on the rails.
If that opener sounds a little Rosa Stalinspart in nature, let me bring things down to Earth with some bald facts – all from the US Statistical Bureau – about how things have changed for the average American citizen over the last 50-60 years. For clarification, the US terms the average family middle class, but it doesn’t mean what it means in the UK and Europe. The American term refers to the skilled blue collar and lower end white collar employees in the States: the heart of the mass market:
- Almost half of Americans lack enough money to cover an unexpected $400 expense
- Today, the US parent pays way over $200,000 to raise a child….much more if the kid goes to College. In 1960, the entire education cost roughly $25,000.
- In 1959, the gearing required to buy a home for a high school teacher was a mere 55%. Today, it is closer to 500%. The teacher’s real income has declined by a staggering 68%.
- Americans in 2018 have over $1.1 trillion in motor car debt alone. The figure has skyrocketed 2,954% since 1971. The US Fed Reserve has let money supply rip 2,075% since 1971. In that context, Americans have also racked up more than $1 trillion in credit card debt. This debt explosion also started in the early 1970s. Credit card debt is up 14,281% since 1971.
It is quite wrong to say that the US middle class is “deeper in debt” than it used to be. Depending on the type of credit used, the average Stateside consumer is 300 to 1400 times more indebted than 47 years ago. That’s not deeper, its an infinite Black Hole of debt….and nobody knows what’s on the other side.
So clearly – in fact, let’s call a spade a spade – bloody blindingly obviously – one second after either interest rates are bumped up a couple of points and/or a major credit supplier collapses, massive numbers of Americans and investors are going to be in the doodoo. The construct given life by Nixon in 1971 (and then nurtured by Reagan and Thatcher after 1978) is going to implode.
I mean, how could it not do?
Well, some of you may have heard of the Equifax scandal; if not, the Sun headline is that this credit supplier’s purchaser information was compromised on a massive scale – and allowed scammers across the US to plunder the identity of thousands of borrowers for nefarious purposes.
So that tireless supporter of the Little Citizen, Elizabeth Warren, introduced a bill to make ‘freezing’ of ones details – ie, blocking anyone’s access to them – completely free, rather than something for which the borrower has to pay.
A sound move (you might think) and Congress agreed….pledging to give the legislation an easy ride. But last September, I stumbled upon one worrying aspect of this approach: when you freeze your credit report, you are stopping any of your personal data from being reported to lenders and creditors too.
This is going to have one or more of three results: either customers who opt for it will then find it impossible to get another loan (the situation that, on the whole, pertains now); or lenders will change their approach to customers who freeze their details; or loans in which the freeze option has been taken by the borrower will be targeted by the original lender for unwise top-ups….not least because their rivals have been effectively shut out, and thus there is an opportunity to charge more.
Selling credit is the same target-driven madhouse it ever was. So too is the hugely overvalued stock market. Falloffs in sales produce lower stock valuations. Members of quoted company boards earn a great deal of money from options that have grown in value.
So if frozen accounts, say, treble in value as a result of the legislation, what do you think the lenders will do?
Enter The Donald….a man who has finally come out as just another can-kicker.
Last Tuesday (May 22nd) the US House of Representative passed Warren’s bipartisan bill from the Senate. I emphasise the bipartisan nature of the Bill to point out that the Republicans are no less insouciant than the Democrats.
The Warren recommendations will be passed alongside new Trump-inspired legislation that is very clearly designed to roll back more Dodd-Frank regulations passed after the 2008-9 debacle. Which, if you recall, centrally involved the high-pressure selling of poorly credit-checked housing loans.
Trump needs a housing boom to make his “recovery” look kosher. He also needs the Warren proposals to give evidence of his desire to protect the data of ordinary Americans. Overall, the proposed legislation (and trust me, having passed both Houses it is now a cert) is a not entirely ingenious way of returning the economy to the sort of boom that, with two and a half years to go, could easily see President Trump reelected. As a piece of cynical America First populism, it makes Greenspan’s 2003 expansion look like a model of good governance.
The President intends to sign off the legislation next Monday – Memorial Day, which is a holiday in the US.
I rather suspect that Ms Warren has inadvertently given the credit sector another blind-eye-to-telescope moment here….especially as the overall drift of the Trump ‘reforms’ is “Happy days are here again guys”.
Either way, this is the bottom line:
America’s addictive dependence on lunatic debt levels will get worse
So, back in Realsville EU, we see just one more way in which the accelerating express bound for Grand Canyon Cliffs Station can keep going.
Now put the Black Hole of debt into the mix with a new US Fed Chair far more likely to be a Trump ally than his predecessor.
I keep on saying this, and will continue to do so: Crash2 is going to involve the biggest kicked-can mountain in history.
Footnote: The Donald may well need a boom to get reelected: his North Korean summit has fallen apart, and the White House has now officially withdrawn from the Summit. Here, yet again, we have a news event for which there are myriad explanations and interpretations. On the one hand, the serial nutters around Trump (Pence and Bolton) talked about the need for a “Libyan model solution” if the talks failed….a threat that was both crass, and perhaps meant to destroy the summit. On the other, Kim’s goal may well have been, from the start of it, to come out of this looking like the Wronged Good Guy. And on a third hand which, having only two arms, I don’t have, the NK Big Hat military goons may have told the Great Helmsman to back-pedal.