Archive - Jan 9, 2010 - Story

An interesting observation emerges when one analyzes the various holders of non-revolving consumer credit. While the traditionally largest players in non-revolving consumer credit provisioning, commercial banks and finance companies, have been materially curtailing their lending of auto loans (the primary form of non-revolving credit and which also includes student loans, as well as boat and trailer loans) with their combined holdings declining by 5% year over year (from $989 billion to $940 billion), another actor has jumped in to take their place. It should not surprise anyone, that with a 68% increase in non-revolving credit holdings over the past 12 months, this entity is none other than the Federal Government.

By now everyone knows about the Rip Van Winkle effect in stocks: the "noughties" were a snoozer, with the stock market lower on December 31, 2009 than on January 1, 2000. Yet what may have escaped most people is that the decade was also a scratch in terms of employment: the country now has essentially the same number of employed people as it did 10 years ago.

The insightful authors of "This Time It's Different" Carmen Reinhardt and Ken Rogoff are at it again, doing a simple yet crucial empirical analysis correlating sovereign debt (both government and external), and inflation (in some case) with GDP growth. It will come as no surprise to anyone that the more indebted a country is, with a government debt/GDP ratio of 0.9, and external debt/GDP of 0.6 being critical thresholds, the more GDP growth drops materially. Alas for the US, which is on the wrong side of this threshold, at the rate Geithner is issuing debt, the US economy will be able to grow organically, and not through stimulus after Keynesian stimulus, only after the administration manages to find a way to reduce its massive and growing debt load. In other words never.