EDMOND — A recent Associated Press headline read, “Late Credit Card Payments Hit 15-Year Low.”  Late credit card payments are at their lowest levels since the late 1990s — the last time our economy was in a full-blown boom! The rate of payments 90 days or more delinquent dropped to 0.74 percent in the first quarter. This is a reduction of almost half from the highs seen in the first quarter of 2009, during the peak of the meltdown and credit crisis.    

Given that unemployment remains near multi-decade highs and that millions of Americans are in debt trouble or underwater on their mortgages, you would wonder, How is this possible? Is the crisis over? Not exactly.

When something sounds too good to be true, it generally is. As is always the case with economic data, you have to read between the lines. Yes, credit card delinquency is at its lowest levels since 1996. But a major reason, according to Moody’s, is that the banks have written off $74.5 billion in bad credit card debts in the past few years. It’s not that delinquent borrowers got religion and started making payments. No, the banks simply gave up and wrote off the debt as a loss. Debt that gets written off is no longer “delinquent.” It just disappears, along with a corresponding amount of shareholder equity.

Continued consumer deleveraging also has played a large part. Americans, and particularly the baby boomers who see retirement looming in front of them, underwent a major psychological shift in the past few years. With their home equity and stock market investments decimated by the crisis, they have reacted prudently by cutting back on their spending, paying down their debts, and building up their savings. As a result, the average credit card balance has dropped from $5,165 to $4,679 in the past year — a drop of 9 percent.

Consumers aren’t the only ones with a newfound sense of responsibility. The banks have significantly raised credit standards. Most mortgage lenders require substantial down payments now, and credit card lenders have become far more cautious about who gets a card and how large a credit line they receive.

So, while a reduction in credit card delinquency should be viewed as a positive, it’s important to understand the underlying parts and what they mean for the economy. Writing off bad loans reduces banks’ capital and their ability to extend new credit. Every dollar that a consumer decides to save is a dollar that does not get spent growing the economy.

On a lighter note, I have exciting news! You know that your fearless forecaster scours endless sources of information, leaving no stone unturned in an effort to bring you all the economic insight you can use. There is no end to which I am unwilling to go to understand the future direction of the global economy.

In doing so, I discovered what might be the ultimate economic indicator for inflation. When I learned that the price of a bikini wax in Brazil was going through the roof, I had to sit up and take notice. Recently, the price of this popular beauty treatment has soared by 16.6 percent to 35 Reals, which is about $22. I have to confess to not having any first-hand knowledge about this sort of thing, but I guess that is expensive. I considered a quick trip to Brazil to personally investigate on your behalf, but decided to just take their word for it.

I know. You’re thinking that I have finally lost it. But this is no joke. One of the ways most countries, including the U.S., attempt to measure inflation is to constantly monitor the prices of a basket of various consumer services to see if those prices are going up or down. Well, it seems that the Brazilian government includes the removal of body hair in the most strategic of places in their basket of consumer services to help determine the country’s inflation rate, which is now estimated at 6.5 percent.

Apparently this has nothing to do with the opposite-gender. It is one of the few measures they track that cannot be manipulated by economists or government officials. No splitting hairs here. You either get the treatment, or you don’t.

The big picture here is that inflation is getting worse, not only in Brazil, but also in other emerging markets like China, India and Vietnam. This is why the yield on one-year Brazilian bonds is at sky high double digit rates as the government tries to slow inflation. It is also why the People’s Bank of China’s efforts to control inflation through higher interest rates and higher bank reserve requirements are likely to get worse before they get better.

So who says economics is boring? This is economics you can use. An economic indicator in the hand is worth two in the bush. Thanks for reading.



NICK MASSEY is a financial adviser and owner of Householder Group Financial Advisors in Edmond. Massey can be reached at www.nickmassey.com. Securities offered through Securities Service Network Inc., member FINRA/SIPC.