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Authored by Wolf Richter via WolfStreet.com,

I’m shedding a different light on consumer debt…

This type of chart is trotted out constantly these days to show that American households are in fabulous shape when it comes to their ability to service their blistering record debts. The red line in the chart shows household debt-service payments (combined monthly payments on mortgages, credit cards, auto loans, and student loans) as a percent of disposable (after-tax) income. Since 1980, the ratio has ranged from 9.9% to 13.2%. It hit that top in Q4 2007 just before it all came apart. Ten years later, it was at 10.3%. Hence the conclusion that households won’t have any trouble servicing their record debts. In a moment, we’ll get to the trap in this conclusion.

The chart above also shows separately the ratios of mortgage-debt-service to disposable-income (brown line) and of non-housing consumer-debt-service to disposable-income (blue line). Both combined make up the red line.

These debt-service ratios are a function mostly of three factors: The dollar amount of the debt; the interest rate on that debt; and the amount of disposable income. The logic is that rising disposable income supports rising indebtedness.

The large decline of the debt-service ratio from the peak of 13.2% in Q4 2007 to the all-time low in the data of 9.9% in Q4 2012 was caused by several factors:

1. Consumers “deleveraged” mostly by shedding their debts via defaults and bankruptcies.

2. Homeownership dropped to lows not seen since the 1960s. As households became renters, their mortgage debts were eliminated.

3. Mortgage debt plunged by $1.2 trillion, or by 11.3%, from $10.6 trillion in 2007 to $9.4 trillion at the end of 2014. It has since risen to $10.1 trillion.

4. Non-mortgage consumer debt dropped by $150 billion or 5% by late 2010, as student loans continued to surge while auto loans and credit card debt experienced sharper declines. It has since surged 47% past the prior peak.

5. Interest rates also plunged. This allowed the remaining homeowners to refinance at a lower interest rate, and it allowed homebuyers to get lower-interest-rate mortgages. Interest rates on many consumer loans also dropped.

6. Disposable income rose from $10.7 trillion at the end of 2007 to $14.6 trillion at the end of 2017 (not adjusted for inflation), largely due to an additional 9.2 million jobs and nominal wage gains.

It all looks good, in terms of the debt burden. And so the red line in the chart above is trotted out to show that the American consumer – this unified, amorphous, monolithic structure whose job it is to hold up the entire global economy – is strong and won’t buckle.

But there’s another way to look at this – and not as a monolithic structure. Many consumers are debt free and have lots of money and good jobs. Other consumers have large amounts of debt, lousy jobs or no jobs, and are paying for groceries by charging them on their credit cards. Credit problems always involve the most vulnerable consumers. During the mortgage crisis, the delinquency rate peaked at 11.5% in 2010. It wasn’t the 60% of homeowners that had significantly payed down their mortgages or owed no money on their homes who triggered that event. It was the financial mayhem among the smaller portion of the most exposed and most vulnerable.

For a different view of the burden of debt, let’s look at non-housing consumer debt, because this is where the music is playing right now. To eliminate for a moment the impact of interest rates, let’s look at the amount of debt – not the monthly payments – as percent of disposable income.

And suddenly, the risks emerge a little more clearly. At year-end 2017, the ratio of non-housing debt – revolving credit such as credit card balances, plus auto loans and student loans – to disposable income reached a new record of 26.3%, up from 23% at the end of 2010, and up from 24% in 2007, the peak before it all came apart during the Great Recession:

So the ratio of non-housing consumer debt to disposable income – the burden these consumers carry on the backs in relationship to their incomes – is higher than ever, and only historically low interest rates have kept it manageable.

But interest rates are now rising, and many of these consumer debts have variable rates.

This explains a phenomenon that is already appearing: How this toxic mix – rising interest rates and record high consumer debt in relationship to disposable income – has now started to bite the most vulnerable consumers once again. And for them, debt service is getting very difficult.

In Q1, the delinquency rate on credit card debt at banks other than the largest 100 – so at the 4,788 smaller banks – spiked to 5.9%, higher than at the peak during the Financial Crisis, and the credit-card charge-off rate spiked to 8%. These smaller banks marketed to the most vulnerable consumers that had been rejected by the biggest banks. And now, once again, subprime is calling. Read…  Credit Card Delinquencies Spike Past Financial-Crisis Peak at the 4,788 Smaller US Banks 

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Michael Avenatti, the attorney representing porn star Stormy Daniels, was described by his wife during divorce proceedings as “emotionally abusive and lacking control over his anger,” reports the Daily Caller‘s Peter Hasson and Joe Simonson – who Avenatti threatened after their last exposé shed light on a variety of questionable business dealings. 

Lisa Storie-Avenatti said under oath that Michael Avenatti threatened to “burn” all of their money on their divorce, and would call the police to arrest both of them so that child protective services would take their son into protective custody. Storie-Avenatti’s attorneys argued in court that this was further proof that Avenatti “is angry and vindictive, and has no regard for emotional harm caused to his son, his daughter or to Lisa.” 

In a sworn court declaration TheDCNF reviewed, Lisa Storie-Avenatti asked a California court to grant her exclusive use of their marital home after she said her husband threatened and emotionally abused her. Both parties now dispute this account, as they finalize their divorce.

Despite these recent denials, Storie-Avenatti alleged her husband threatened to call the police and get them both arrested, which would cause her to lose custody of their son and put him into the hands of the state’s child protective services. –TheDCNF

Avenatti and his estranged wife both dispute her testimony – marking the second time he has been accused of wrongdoing, only for his accuser to retract their claim after the Daily Caller reached out for comment.

According to court documents reviewed by the Daily Caller, Avenatti “berated and threatened his estranged wife outside the house they used to share,” before calling the police on her. Avenatti’s had brought his teenage daughter from his first marriage, who reportedly tried to hide as her father, the “feminist ally,” browbeat his most recent estranged wife, recounted Storie-Avenatti during her sworn declaration. 

On Dec. 17, 2017, Storie-Avenatti had offered for Avenatti to spend the day with their son, accompanied by a nanny, she recounted under oath in a Jan 3, 2018, declaration. (She had long been their son’s primary caregiver, as Avenatti was routinely absent and unreliable even before they separated, his mother told the court.)

Avenatti “took umbrage” at the stipulation and showed up outside the house in a fury that same day, she said in the declaration. Avenatti told TheDCNF on Thursday he had “to retrieve some of my belongings.” (The couple separated on Oct. 30, 2017, around which point Avenatti moved into a nearby luxury apartment, court documents show.)

Storie-Avenatti sent their young son upstairs with the nanny and confronted Avenatti outside the front door — at which point he “immediately started yelling at me to let him into the house and started to videotape me with his phone,” she recounted.

“I told [him] to stop making a scene and that he was scaring [his daughter], who was hiding behind a pillar,” she said. According to the court testimony, Avenatti retorted that he brought the girl as a “witness.”

He “continued to yell at me and at some point must have called the police, who arrived. I heard [him] tell the police he wanted access to the house,” she said. “The police declined [his] request and later told me that this was going to be a nasty divorce.”

Michael Avenatti’s side of things

Avenatti, who fired off an “insane” threatening email last week after the Daily Caller exposed a variety of questionable business dealings – challenged the account in an email to TheDCNF on Thursday: 

“The police arrived and informed me that I was correct that I should have access but stated they could not grant me access but if I wanted to force access, I could because I had every right to the home. I declined to do that because I did not want to escalate the situation,” he explained. “The police told me I was being more than reasonable and was the ‘calm’ one. The police declined to make a report despite my request that they do so.”

Avenatti also disputes yelling so loudly that his daughter had to hide behind a pillar, stating “I did not yell at her, and my daughter never ‘hid’ behind anything.” 

Storie-Avenatti also denied her testimony in a Thursday statement, saying that she and Avenatti are “presently finalizing a divorce, and we ask for privacy for our sake and that of our son.” 

“To be clear, there was never any abuse, alleged or otherwise, in our relationship. I never feared for my safety or that of my son. Period. Michael has in the past been a loving and caring husband and is a loving and caring father. I never called the police because I was never threatened with harm. I never sought to have him excluded from our home because I felt threatened or feared for my safety or that of my son,” she said.

“Further, he has paid all child support and spousal support. He is a good man. It appears you are trying to harm him and our family by publishing a defamatory story that has no basis in reality.”

Except for her own court testimony, under oath, which would ostensibly mean she committed perjury if none of it is true. When asked by TheDCNF to clarify the odd discrepancy between her sworn statement and her emailed statement, Storie-Avenatti did not reply prior to publication. 

Meanwhile, to catch up on the Daily Caller’s recent goings on with Michael John Avenatti: 

Avenatti previously threatened to sue TheDCNF for reporting on serious allegations in his background, although he has yet to challenge a single fact in TheDCNF’s reporting. Journalists at several other outlets have since said Avenatti threatened or intimidated them for reporting on him.

After that threat, TheDCNF uncovered further ethically questionable behavior in Avenatti’s past. Avenatti’s company, a Washington court found, fired a woman for being pregnant.

Despite the court ordering Avenatti’s company to pay a $120,000 settlement, the woman has yet to receive any money.

#BASTA!

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The Wall Street Journal continues to counter  the  liberal mainstream media’s anti-Trump-ness, dropping uncomfortable truth-bombs and refusing to back off its intense pressure to get to the truth and hold those responsible, accountable; in a forum that is hard for the establishment to shrug off as ‘Alt-Right’ or ‘Nazi’ or be ‘punished’ by search- and social-media-giants.

And once again Kimberley Strassel – who by now has become the focus of social media attacks for her truth-seeking and honest reportage – does it again this morning, as she asks, rhetorically, why the FBI and Justice Department contuning evading congressional oversight?

Via The Wall Street Journal,

Democrats and their media allies are again shouting “constitutional crisis,” this time claiming President Trump has waded too far into the Russia investigation. The howls are a diversion from the actual crisis: the Justice Department’s unprecedented contempt for duly elected representatives, and the lasting harm it is doing to law enforcement and to the department’s relationship with Congress.

The conceit of those claiming Mr. Trump has crossed some line in ordering the Justice Department to comply with oversight is that “investigators” are beyond question. We are meant to take them at their word that they did everything appropriately. Never mind that the revelations of warrants and spies and dirty dossiers and biased text messages already show otherwise.

We are told that Mr. Trump cannot be allowed to have any say over the Justice Department’s actions, since this might make him privy to sensitive details about an investigation into himself. We are also told that Congress – a separate branch of government, a primary duty of which is oversight – cannot be allowed to access Justice Department material. House Intelligence Committee Chairman Devin Nunes can’t be trusted to view classified information – something every intelligence chairman has done – since he might blow a source or method, or tip off the president.

That’s a political judgment, but it holds no authority. The Constitution set up Congress to act as a check on the executive branch—and it’s got more than enough cause to do some checking here. Yet the Justice Department and Federal Bureau of Investigation have spent a year disrespecting Congress—flouting subpoenas, ignoring requests, hiding witnesses, blacking out information, and leaking accusations.

Senate Judiciary Chairman Chuck Grassley has not been allowed to question a single current or former Justice or FBI official involved in this affair. Not one. He’s also more than a year into his demand for the transcript of former national security adviser Mike Flynn’s infamous call with the Russian ambassador, as well as reports from the FBI agents who interviewed Mr. Flynn. And still nothing.

Ron Johnson, chairman of the Senate Homeland Security and Government Affairs Committee, is being stonewalled on at least three inquiries. The House Judiciary and Oversight committee chairmen required a full-blown summit in April with Justice Department officials to get movement on their own subpoena. The FBI continues to block a fuller release of the House Intelligence Committee’s Russia report.

Not that the documents that Justice sends over are of much use. Mr. Grassley this week excoriated the department for its routine practice of redacting key information, and for similarly refusing to provide a “privilege log” that details the legal basis for withholding information. His team recently discovered that one of the items Justice had scrubbed from the Peter Strzok-Lisa Page texts was the duo’s concern that former Deputy FBI Director Andrew McCabe had a $70,000 conference table. (Was it lacquered with unicorn tears?) A separate text refers to an investigation that the White House is “running,” but conveniently blacks out which one. The FBI won’t answer Mr. Johnson’s questions about who is doing the redacting.

This intransigence is creating an unprecedented toxicity between law enforcement and Congress, undermining what has long been a cooperative and vital relationship. It is also pushing lawmakers ever closer to holding Justice Department officials in contempt or impeaching them. Congress hasn’t impeached a member of the executive branch (presidents excepted) since the 19th century. Let’s agree such a step would amount to a real crisis. And the pressure to use these tools to get disclosure is growing, as congressional Republicans worry about losing their oversight authority in the midterms, and suspect the Justice Department is stringing them along for that very reason.

Which is why Mr. Trump was right to order that Justice comply with Mr. Nunes’s demands for documents about the alleged FBI spy Stefan Halper and other information related to the catalyst of this investigation. As president, he has a duty to protect the reputation and integrity of the Justice Department—even from its own leaders. Forcing officials to comply with legitimate congressional oversight is far better than sitting back to watch those same officials singe the institution and its relationship with Congress in a flame of impeachment resolutions.

And finally, Strassel has some advice on how to resolve this… Mr. Trump has an even quicker way to bring the hostility to an end.

He can – and should – declassify everything possible, letting Congress and the public see the truth.

That would put an end to the daily spin and conspiracy theories. It would puncture Democratic arguments that the administration is seeking to gain this information only for itself, to “undermine” an investigation.

And it would end the Justice Department’s campaign of secrecy, which has done such harm to its reputation with the public and with Congress.

Just what will the deep state do to avoid this eventuality? Do they have anything left to throw at Trump?

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Things have gone from bad to worse for Tesla and its autopilot feature, after the police results from a recent Salt Lake City crash were released, indicating hat not only was the car was in Autopilot mode when it crashed into a stopped firetruck,  but also that it sped up seconds before the moment of impact.

The police report was detailed as follows:

A Tesla Model S that crashed into a parked firetruck on a Utah highway this month while in its Autopilot mode sped up prior to the accident, a police report says.

Data retrieved from the sedan shows that it picked up speed for 3.5 seconds shortly before the collision in South Jordan, according to the Associated Press. The acceleration from 55 mph to 60 mph suggests that the Tesla had been following a slower car that then moved out of the way, allowing the Tesla to resume the higher speed that the Autopilot system had been set at.

Furthermore, the car did not warn the driver ahead of the collision, even as the driver may have been taking a cue from Elon’s Model 3 reveal, where he told people they could “sleep” in their car: to wit, the driver had her hands off the wheel for 80 seconds and was admittedly looking at her cell phone at the moment of the crash:

The driver, Heather Lommatzsch, told police that she had been looking at her phone and claimed the Tesla did not provide any warnings that it was about to crash. The car’s log said that her hands had been off of the steering wheel for 80 seconds leading up to the impact, and that she applied the brakes less than a second before hitting the firetruck, which was blocking the lane to protect the scene of a previous accident.

Lommatzsch said she had owned the car for two years and used the semi-autonomous Autopilot feature on all sorts of roadways, including on the Utah highway where she crashed, according to the report. She said the car did not provide any audio or visual warnings before the crash. A witness told police she did not see signs the car illuminated its brake lights or swerved to avoid the truck ahead of it. Meanwhile, the NTSB said it is investigating the May 11 crash.

In our original report of the crash , we noted that the police was unsure whether the Autopilot had been engaged.

At the time, the cause of the evening crash, involving a Tesla Model S and a fire department mechanic truck stopped at a red light, was under investigation, said police in South Jordan, a suburb of Salt Lake City.  The police added that there was light rain falling and roads were wet when the crash occurred. “Witnesses indicated the Tesla Model S did not brake prior to impact,” the statement said.

Now we know, and the confirmation is arguably even more bad news for Elon Musk who has been publicly stoking the fire of a feud with journalists that, not surprisingly, is yielding even more negative press coverage, Meanwhile skeptics and critics of the company have been circling around the idea of an NHTSA recall – either based on the car’s supposedly “autonomous” Autopilot feature and how it was billed to the public, or from numerous incidents involving Tesla batteries causing severe damage after catching fire as a result of accidents – or sometimes just while Supercharging:

Needless to say, Tesla’s Autopilot has been the subject of previous scrutiny following other crashes involving the vehicles. In March, a driver was killed when a Model X with Autopilot engaged hit a barrier while traveling at “freeway speed” in California. NHTSA and the National Transportation Safety Board are also investigating that case.

Earlier this week, Tesla claimed its Autopilot was not engaged when a Model S veered off a road and plunged into a pond outside San Francisco, killing the driver. The NTSB has yet to confirm Tesla’s version of events.

Earlier in May, the NTSB opened a probe into an accident in which a Model S caught fire after crashing into a wall at a high speed in Florida. Two 18-year-olds were trapped and died in the blaze. The agency has said it does not expect Autopilot to be a focus in that investigation.

Finally, as has been discussed by analysts, the liability that Musk may have brought unto himself and to the company by giving people the impression at the Model 3 unveiling that the car would be fully autonomous, could soon come back to bite the company in a big way, resulting in a costly and lengthy recall which could quickly sap the company’s dwindling cash; assuming, of course, the media doesn’t skewer Tesla first.

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WTI Crude Futures prices are back at a $67 handle, tumbling 4% today following remarks from OPEC and Russia on the potential easing of output restrictions.

Just a month ago, President Trump tweeted that “oil prices are artificially Very High,” blaming OPEC for the rise which was crushing the gains from his tax cuts and warning that this was “No good and will not be accepted!”

Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!

— Donald J. Trump (@realDonaldTrump) April 20, 2018

Today, prices are plunging as OPEC (and Russia) confirm that they are likely to add to production output in H2 2018 as the possibility of Venezuela and Iran production constraints rise (due to sanctions).

WTI is now back at a $67 handle – exactly where Trump tweeted a month ago…

As we noted earlier, there are certain benefits when the president of the US is BFFs with the ruling Saudi regime, especially when the price of oil rises so high it threatens to not only undo the US president’s tax reform, but to slowdown the overall economy even as said president is injecting a $1 trillion fiscal stimulus in it.

We saw that in practice moments ago when Saudi energy minister Khalid Al-Falih said OPEC and Russia are prepared to adjust policy in June, and that it is likely that there will be a gradual oil supply boost in the second half.

Furthermore, Russian President Putin just said that “$60 oil suits Russia fully” adding that “the future of the [OPEC/NOPEC deal] depends on the fate of the Iran nuclear pact.”

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Julian Assange may be at the end of the line in the Ecuadorian embassy in London, as the WikiLeaks founder may be evicted “any day now,” according to CNN, citing sources familiar with the matter. 

While Assange has in the past claimed his position in the embassy was under threat, sources say his current situation is “unusually bad” and that he could leave the embassy “any day now,” either because he will be forced out or made to feel so restricted that he might choose to leave on his own. His position there is “in jeopardy,” one source familiar with the matter said. –CNN

After losing a March bid to have a UK arrest warrant for skipping bail in a now-abandoned rape case in Sweden, and amid reports that the U.S. has prepared criminal charges in relation to WikiLeaks’ release of Hillary Clinton’s hacked (or leaked) emails during the 2016 U.S. election – Assange would face immediate arrest by UK authorities the moment he sets foot outside the embassy he’s called home for the past six years. 

In the US, Assange’s fate is even more uncertain. Assange’s lawyers claim that US officials have maintained a secret grand jury investigation into WikiLeaks for nearly eight years. -CNN

“For the last eight years, the UK has refused to either confirm or deny that they have received an extradition request from the US. At the same time, they have refused to provide assurances that Julian will not be extradited to the US if such a request were to be received, and maintained an ever-present vigil of the Embassy, notwithstanding a UN directive to take steps to ensure Julian’s immediate liberty,” Assange’s lawyer Melinda Taylor told CNN. “Their silence speaks volumes, particularly in light of recent statements from US officials that Julian’s arrest and extradition are a priority.”

“The concern from day one until the present is that if Julian Assange walks out of the Embassy, he will be extradited to face what the executive director of the ACLU described as an ‘unprecedented and unconstitutional’ prosecution under the US Espionage Act,” Taylor told CNN.

In December, Assange received Ecuadorian citizenship, but the UK indicated it would not recognize his diplomatic status if requested by the Latin American nation, denying Assange the diplomatic immunity that would’ve allowed him to leave.

The UN, meanwhile, has twice ruled that Assange’s detention is unlawful. Despite this, the judge in his most recent appeal – Emma Arbuthnot, who said “I find arrest is a proportionate response even though Mr Assange has restricted his own freedom for a number of years.“

Judge Arbuthnot’s impartiality in the Assange matter has been called into question, while her husband and ex-Conservative MP, Baron James Arbuthnot, is listed as the director of a security company along with the former head of MI6. Not exactly friends of WikiLeaks. 

Meanwhile, Ecuador’s new president, Lenín Moreno, recently pulled funding for security and surveillance countermeasures – and in January called Assange an “inherited problem” that has created “more than a nuisance” for his government. Assange has had his internet access cut in March, and has since lost telephone and visitor privileges aside from his attorneys. 

 

In addition to pressure from the U.S. and U.K., Spain is said to have been exerting pressure on Ecuador after Assange’s support for the separatist independence movements in Catalonia in northeast Spain.

And in an April article from Disobedient Media, it appears as though a U.S. military deal with Ecuador may be behind recent talk of pushing Assange out of the embassy. 

The news of Ecuador’s decision is not only disastrous for WikiLeaks’ Editor-In-Chief, but also to those concerned that an increased US military presence in Ecuador will lead to an uptick in violence there. –Disobedient Media

Timing is everything, as WSWS reports:

On April 3, less than a week after cutting Assange’s Internet, Moreno announced a sweeping austerity plan to slash social spending and facilitate payments to the country’s Wall Street creditors. Citing the deal approvingly, the ratings agency Fitch cited “a 42 percent rise in interest expense” and a “sharply rising debt burden” that “reached 46 percent of GDP in 2017, up from 29.6 percent in 2014.”

On April 4, Spain’s El Pais wrote that Moreno “wants to implement austerity in his new economic program” which “the Moreno government reached through an agreement with analysts and the private sector.”

Fitch noted that “if implemented well,” Moreno’s austerity plan means “there is potential for the reforms to result in fiscal adjustment over the long term,” i.e., more favorable conditions for American and European corporations to exploit the country’s resources and cheap labor.

On March 26, eight days before announcing the austerity plan and two days before cutting Assange’s Internet, the Moreno government met with two leading representatives of US Southern Command, the section of the Pentagon responsible for the military’s activity in Latin America. Before the meeting, the US Embassy stated Lt. Gen. Joseph DiSalvo and Ambassador Liliana Ayalde met with “defense authorities and civil authorities” to “reiterate Southern Command’s commitment to boost and strengthen the friendship between the two countries.”

So – in a nutshell, Ecuador elected a new President who is working with the U.S. military-banking complex in order to shore up their debt, beef up their military and ostensibly in exchange, may be handing Assange over to the West within days. 

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