Credit boom ending?

Barron's: SPEAKING OF PICTURES that aren't very pretty, as we just were, take a gander at the two charts that adorn these scribblings. They're both lifted from Stephanie Pomboy's latest MacroMavens commentary and, frankly, they're more than a little ominous. For what they show is how dependent this quixotic economic recovery has been on IOUs.

The remorseless decline in wages as a percentage of personal income has reached an historic low of 62% (the chart to your left). Meanwhile, consumer spending as a percentage of wages continues to spiral upward (the chart to your right). In the past three years, Stephanie reckons, shop-happy consumers, cheerfully determined to live beyond their means, leaned a lot more heavily on borrowings ($675 billion of non-mortgage debt) than paychecks ($530 billion) to cover the $1.3 trillion increase in their spending.

Great while it lasts, but even the best of sprees -- and it hurts to be the bearer of sad news -- can't go on forever. And this one looks like its time is almost up. Higher interest rates, obscene gasoline prices and the rising cost of just about everything are starting to sap consumers' confidence, to say nothing of their capacity to consume. Retail sales this month, Stephanie takes somber note, have been the weakest since the last recession.

Over on the other side of the fence that separates presumed investment sophisticates from us poor civilians, risk-consciousness is suddenly the in thing. The spread in yields between junk and Treasury paper -- a handy gauge of how venturesome or apprehensive the folks who speculate in bonds are -- has begun to widen, and the flow of corporate bond issues is contracting sharply. Which Stephanie proclaims as clear proof of the dearth of liquidity in the corporate bond market.

Making things infinitely more disturbing is that the companies in the crosshairs, as she puts it, are the very creators of credit -- the likes of GM, Ford, Fannie Mae -- along with the facilitators (nice euphemism, Steph) of credit -- AIG, Ambac, MBIA, to name only a few.

That the demon debt is finally exacting its due from consumer and corporate borrower leads her to the melancholy but unsurprising conclusion that "the great credit boom is now drawing to a close." And here we were so hoping Mr. Greenspan could take his leave smiling.