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A Hidden Volcano Of Debt

via  Chuck Tatelbaum

The Associated Press recently reported that in December 2017 alone, based upon augmented consumer confidence, consumer borrowing increased by $18.4 billion, says Chuck Tatelbaum a director with the Tripp Scott law firm in Fort Lauderdale, Boca Raton and Tallahassee, FL. Of this amount, $5.1 billion was an increase in credit card debt and $13.3 billion for student and motor vehicle loans. This follows an increase of $31 billion of consumer debt, most of the credit card nature, in November 2017.

“Increase in consumer debt could have a disastrous effect,” says Tatelbaum

What is so frightening about these statistics is that with the impending interest rate increases to be promulgated by the Federal Reserve in 2018, consumers will be required to pay a collective $250 million per year in additional interest on their consumer debt for these two months alone, even if the Federal Reserve only increases the Federal Reserve Rate by one half of one percent (a higher increase throughout 2018 is predicted). Lured by low credit card and consumer loan interest rates, this increase in consumer debt could have a disastrous effect when satisfaction of the debt is prolonged due to interest rate increases, and create a disastrous explosion of consumer debt defaults.

With Sunday’s Chapter 11 filing for Bon-Ton Stores, the unfortunately anticipated cascade of retail closings and reorganizations is beginning to escalate. Bon-Ton, like so many other retailers that incurred substantial amounts of seemingly low-interest debt either by way of a leveraged buyout or otherwise, has now found that when the maladies of brick and mortar retailing mixed with a large debt service, an explosive concoction is created. The Bon-Ton Chapter 11 filing, while not unexpected, places at risk not only the vendors to the retailer, but also the landlords for the 42 stores that will be closed as well as the employees who, in today shrinking retail environment, may have no ready venue of replacement employment. The same is true for many struggling retailers, large and small.

Although the new jobs reports coupled with the shrinking overall unemployment appears to create a positive continuing rebound for the economy, the shrinking opportunities for already poorly paid retail workers may dramatically change the employment outlook and statistics in coming months.

With the slowness in payment to vendors by retailers, many vendors are tightening terms of repayment in the upcoming months which will place additional stress on retailer when the shelves are becoming bare due to the lack of inventory availability.

Consumers are (and should be) wary of purchasing gift cards from distressed retailers, which will only exacerbate the lack of confidence by consumers in dealing with brick and mortar retailers.