Thoughts from Business Week

I just got through reading this weeks Business Week and wanted to make sure to capture some things I thought were interesting so I can chew on them.
 
The splashy cover story “Credit on the Edge” details what BW thinks is a coming crisis in consumer credit.  The most interesting stat to me is the mean household credit card balance–$7,000.  That would be a lot for me to carry even on my salary.  I can’t imagine that on the median income in the U.S. of $44,389 where more than half of those homes support 1 kid (based on a median household size is 2.57)–see Wikipedia for details.
 
I was curious what the total dollar figure of consumer debt is.  The BW article didn’t include this so far as I could tell.  The Motley Fool takes a crack at this.  Their numbers don’t add up though if you  assume there are 114 million households in the U.S.  The Motley Fool number would get you a mean debt of $14,912–a full 86% more than both the BW number and Motley’s own $8,562 number.  So I think folks are either counting what constitutes “consumer credit debt” differently or are using spurious numbers for the number of households.
 
In any event, if you take the low number of $8,562 that’s really high.  In the short term I would invest in companies like Pay Day Loans and Money Tree, because they will make a fortune trying to provide liquidity for families.  Interestingly, the BW article points out these same companies are now building stores in more affluent neighborhoods they wouldn’t have touched 5 years ago.  In the medium term, I am sadly resigned that congress will step in trying to solve the problem and of course end up making it a bigger mess.  I would not want to be in the banking industry, because there’s so much uncertainty what regulation will do.  And certainty is exactly what the industry needs, since it’s the only way investors will get back in the game.  And that’s why I am sad about what our politicians will likely do.
 
So does this mean the U.S. is horribly unhealthy and in deep danger?  Part of me instinctively says no, because I know what’s really happening here: companies like Citi, Capital One and Chase in exchange for providing liquidity to consumers reap large profits.  They don’t stuff that money in their mattress, but instead either invest in new business by handing out loans or return that money to shareholders in dividends and stock buy backs.  So far America is doing just fine.  The one problem I see though is that we’re tying up a lot of human energy (and probably capital assets) spining our money around  in ways that could be easily avoided if we all just spent our money more wisely and saved enough so that we didn’t cary credit card balances month to month.  How much energy is spent on this?  It’s hard to say, but I’ll take a very crude stab.  Capital One employes 31,000 people.  They certainly do more than credit cards, but this is easily the bulk of their business providing about 75% of their net income.  That’s 31,000 people that could have been employed building other cool products or delivering fantastic service.  Those 31,000 people are put in probably dozens if not hundreds of office buildings; space tied up that could be used for something better.
 
On the balance, I think the macro economy is just fine.  I am very happy to have those 31,000 people at Capital One, because it means I don’t have to make extra trips to the cash machine.  I just plunk down my Visa and get a cup of coffee at Starbucks.  And I pay one single bill for the whole thing at the end of the money.  It’s a huge time saver for me and no doubt thousands of other people. 
 
The real news in BW was burried on page 73.  I think it’s so important I am going to give that news its own blog entry.

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