We have disclosed on numerous occasions how excess refunds by the Federal Government despite subpar withholdings is goosing up consumer spending. Now we hear from none other than Mark Zandi of Moody's Economy that the government's tacit encouragement for "homeowners" to not pay their mortgage dues is freeing up $8 billion each month that is artificially increasing consumer spending and iPad preorders. And with banks not marking anything to market, all these houses that generate no cash flow are still marked at 100 cents on the books. If you ever needed a justification to not pay your credit card, your mortgage, or anyone else you owe money, now you know - contract law in America no longer exists. Just stop paying everything. And please dont save. Saving is for non-banana republics. Remember - the market is never wrong. And nobody can remember when was the last time we had a downday. So all must be well.
From Diana Olick's blog:
I opened up a big can of debate Monday, when I repeated some chatter around that consumer spending might be juiced by all those folks not paying their mortgage.
They have a little extra cash, so they're spending it at the mall.
Some of you thought the premise had some validity, others, as is often the case, told me I was an idiot.
Well after the blog went up Erin Burnett put the question to Economist Robert Shiller, of the S&P/Case Shiller Home Price Index, during an interview on Street Signs.
He didn't deny the possibility, and added:
"In some sense there might be a silver lining in that."
Then I decided to ask Mark Zandi, of Moody's Economy.com, who will often shoot down my more ridiculous theories.
I asked him if this was a crazy idea:
No, not crazy. With some 6 million homeowners not making mortgage payments (some loans are in trial mod programs and paying something but still in delinquency or default status), this is probably freeing up roughly $8 billion in cash each month. Assuming this cash is spent (not too bad an assumption), it amounts to nearly one percent of consumer spending. The saving rate is also much lower as a result. The impact on spending growth is less significant as that is a function of the change in the number of homeowners not making payments.
I'm not sure I would say this is juicing up spending, but resulting in more spending than would be the case otherwise.
Many of these stressed homeowners (due to unemployment) are reducing their spending, just not as much as they would have if they were still making their mortgage payment.