In April 2010, we discussed the false meme that defaulting homeowners were about to cause a surge in retail spending (Are Defaults Really Driving Retail Spending?). That blessedly data free idea turned out to be false. But as the backers of Supply-Side economics will tell you, its hard to keep a bad idea down. Thus, the same Defaulter/Retail spending theme has once again resurrected.
How did this pop up again? A wild-ass JPM estimate that defaulters had $50B in additional spending dollars led to a lame Bloomberg article on ‘Squatter Rent’ boosting spending; James Cramer mentioned it in passing, and from there, it spread. (Global Macro Monitor brought it to my attention).
The balance between QE and Treasury supply will begin to shift in July. The underlying bid it has provided for stocks and Treasuries will begin to fade.
This report tells why, and what to look for in the data and the markets. GO TO THE POST
Let’s take another crack at this, beginning with our two-handed economist: On the one hand, there are some 6.4 million mortgage holders behind on their mortgage — some are paying nothing, some are only a month behind and trying to catch up, some are in default. (I expect this to turn into another million foreclosures in 2011).
On the other hand, more than 15 million people are out of work, with little or no income. Not paying the mortgage when you have no income does not suggest any sort of shopping spree — other than essentials like food, gas, auto insurance, electricity, etc. (Better hope no one in the family needs health care).