09 March 2013

Good News for Bankruptcy Lawyers

Most folks may not know that bankruptcy filings are a lagging indicator of economic activity. In other words, only after spending has increased for a number of quarters will the number of bankruptcy filings show an uptick, which explains why month-on-month filings in the United States have been falling for many months. Filings hit their peak in 2011, about two years after the onset of the Great Recession, and have trended down ever since.

Since about 70% of the U.S. economy is driven by consumer spending, it is only when consumers spend more that economic activity increases. And it is only when consumers incur debt that they spend more. Americans, far more than other peoples, are guilty of unwarranted optimism; we spend before we have the money.

In any event, a few days ago Bloomberg reported here that January saw a .2% rise in consumer spending notwithstanding the restoration of the full payroll tax deduction for Social Security. The stock market bull run will also feed consumer irrational exuberance.

All of this means that good times are a-comin' for bankruptcy lawyers. While neither a prophet nor the son of a prophet, I predict that month-on-month filings will show an uptick by the second quarter of 2014.

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