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Debunking The Great Myth Of US Consumer Deleveraging, Or Why The US Economy Will End Not With A Whimper But A Bang

Tyler Durden's picture




 

By now everyone 'knows' that the US consumer is hunkering down, paying down debt and performing other mythological tasks. Alas, as the WSJ points out today, this is not exactly true... In fact not true one bit. The reality is that over the past two years, US consumers have not been deleveraging as a voluntary act of eliminating debt, but have been actually aggressively leveraging more and more until the bank providing them credit puts them into involuntary bankruptcy, cutting off the money spigot. This is a startling realization, confirming that the average American is actually hyperleveraging to the point where all available credit is forcefully eliminated by a lender institution!

Here are the facts: as the Flow of Funds report demonstrates, total household credit, consisting of Home Mortgages and Consumer Credit, has indeed declined by $610 billion from $13.2 trillion to $12.6 trillion since the credit bubble peak in June 2008. Yet, as Mark Whitehose points out, there are two ways in which this "deleveraging" can occur. Voluntarily, in the form of actual financial discipline, whereby the end consumer makes a conscious effort to pay down their debt, and Involuntarily, which is really not deleveraging, but aggressive leveraging to the hilt, up until the point where banks eliminate all credit access to the end consumer.

Luckily there is a way to quantify which road has been more travelled by. As the WSJ points out, in the period in which consumer credit has declined by $610 billion, banks and other institutions have charged off $588 billion in mortgage and consumer loans. (Our attempts at recreating these numbers using Fed H.8 and charge off data were slightly off, in fact demonstrating that based on charge off data as calculated, forced deleveraging will only accelerate as it catches up to bank charge off runrates). Nonetheless, a good way to visualize this phenomenon can be seen in the chart below:

Putting numbers to the data confirms that of the over $600 billion in deleveraging, only $20 billion or so of it was voluntary, with the balance occurring due to continuously irresponsible borrowing practices, in which US consumers spend, spend, spend themselves into oblivion only to be cut off cold turkey, instead of entering a slow deleveraging rehabilitation which would allow them to shift into the transition to a new creditless normal far easier.

The last observation is key as it has rather startling implications to David Rosenberg's theme of the New Frugal Normal. It would appear consumers do not, in fact, moderate their spending while still in possession of credit (regardless of its cost) - quite the contrary: they accelerate spending until the charge off threshold at the lender is breached, and all credit is cut off, also resulting in a collapse in a creditor's FICO score, cutting him or her off completely from future (at least near term) credit access. Thus what is occurring at the end of a typical consumer credit lifespan, is not a whimper but a massive bang. What happens after may require Stephen Hawking's explanation rather than David Rosenberg. The conclusion is that consumers do not pass a moderate "go" on their way to insolvency, they go from hyperleverage straight into bankruptcy.

What this means for consumption as observed on the supply-side, i.e., sales at stores like Nordtstroms and Barneys, is that instead of trendlines being indicative of what is truly happening behind the scenes, we have now entered a phase where sales will spike only to drop off in a quantized, step-wise fashion, rather than a linear drop off. This would make all the sense in the world, when one considers that side by side with the observed "deleveraging" of consumers, sales at aspirational store concepts are in fact surging, as the broke middle class performs one last "swan song" rampage of purchasing every Gucci and Chanel bag available, before saying goodbye to credit for a long, long time.

And with unemployment still at record highs, and soon to take another leg higher, paychecks continuing to decline, excess capacity at record highs, 99 week EUC and Extended Claims reaching their ceiling 2 year anniversary from the Lehman collapse, and the general economy double dipping, the implications of this will be dire, as there will be no gradual decline. Instead, to borrow another cosmological term, instead of the US economy decelerating at a rate proportional to the removal of credit from the system, it will grow and grow until it hits supergiant status, only to collapse into a neutron star (or worse) singularity, in which only the Fed will be left beyond the event horizon, only to suffer a similar fate in its last ditch failed attempt to stimulate hyperinflation and rescue the US consumer and banking classes from the infinite gravitational pull of a failed Keynesian experiment.

 

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Sat, 09/18/2010 - 14:14 | 589737 RockyRacoon
RockyRacoon's picture

Load up and check out.  Take the towels and the little shampoos as well.

I'm maintaining my 800+ credit rating so that when the ramparts start to fail I can borrow to the hilt (they will be seeking me out) and check out with a few precious metals purchases to supplement my income in my old age.  I'll have created my own little Poinzi scheme to remove my brick in the wall from the bigger Ponzi.

Sat, 09/18/2010 - 14:15 | 589744 Freebird
Freebird's picture

So the American peoples are following their debauched leaders in squandering their debauched currency and more...? Sounds like a plan.

Sat, 09/18/2010 - 14:21 | 589748 RockyRacoon
RockyRacoon's picture

You goddam right.  They showed us how the game is played by giving us hands-on training as well as a plethora of tools.  This is gonna be fun.

See this link posted at another article:

http://research.stlouisfed.org/publications/es/10/ES1018.pdf

Make special note of chart #3.

Sat, 09/18/2010 - 14:53 | 589805 silvertrain
silvertrain's picture

 "They showed us how the game is played by giving us hands on training as well as a plethora of tools"

 Damn skippy they did..Everybody is not alseep, I can guarantee you that..Patience is the virtue and there will come a time to take advatage of the situation at hand...

 Be prepared, it wasnt raining when Noah built the Ark..In fact, it hadnt rained for years...

Sat, 09/18/2010 - 19:32 | 590088 kathy.chamberli...
kathy.chamberlin@gmail.com's picture

s i m p l i c i t y

     p a t i e n c e

          c o m p a s s i o n

 

 

Sat, 09/18/2010 - 21:18 | 590165 New_Meat
New_Meat's picture

w a s  that a  h a i k u  ?

-- Ned

Sun, 09/19/2010 - 10:40 | 590529 grunion
grunion's picture

Actually they are instructions on how to be a decent human being. Probably why they are not recognized...

Sun, 09/19/2010 - 17:47 | 590974 kathy.chamberli...
kathy.chamberlin@gmail.com's picture

t a o te c h i n g

 

-- kath

Sat, 09/18/2010 - 20:58 | 590142 skippy
skippy's picture

I've got my towel, do you.

http://www.youtube.com/watch?v=xs3V_20oD4A

 

Skippy...BOING, BOING, BOING!!!.

Sat, 09/18/2010 - 21:43 | 590184 RockyRacoon
RockyRacoon's picture

Yeah!  And thanks for all the fish.

Sat, 09/18/2010 - 22:24 | 590224 Id fight Gandhi
Id fight Gandhi's picture

42

Sat, 09/18/2010 - 22:43 | 590241 skippy
skippy's picture

lol silly prof's and it needs back up

 

http://www.youtube.com/watch?v=aboZctrHfK8

Sun, 09/19/2010 - 17:46 | 590973 kathy.chamberli...
kathy.chamberlin@gmail.com's picture

power of the,   t  o  w  e  l .

i have great respect for my towels. very feng shui.

Sun, 09/19/2010 - 14:17 | 590758 Getagrip
Getagrip's picture

In fact it had never rained. All water was sub terrain. That's why no one believed Noah and thought him a fool...      

Sat, 09/18/2010 - 15:54 | 589884 Freebird
Freebird's picture

Happy days Rocky. I am keen on Marc Faber`s analogy of how we each need to be our own central bank. Reserves in PMs, hard assets, fx to protect your fiat requirements and by the looks of it, the masses welch on certain liabilities...

Sun, 09/19/2010 - 01:46 | 590359 Bolweevil
Bolweevil's picture

"I am Tyler's central bank."

Mon, 09/20/2010 - 00:40 | 591429 fasTTcar
fasTTcar's picture

+1281.20

Sat, 09/18/2010 - 18:33 | 590030 FEDbuster
FEDbuster's picture

walstreetpro2 was way ahead of you guys with the buying silver with credit cards that will never get paid back.  Enjoy this blast from the past (June 09):

http://www.youtube.com/watch?v=T2fVqDzjVis

 

Sun, 09/19/2010 - 12:44 | 590660 tmosley
tmosley's picture

Some were doing this in 08.  I thought about it myself.  Of course, now I wish I had.

Sat, 09/18/2010 - 19:06 | 590064 adissidentishere
adissidentishere's picture

Thanks for posting that link. Very interesting commentary and data.

Sat, 09/18/2010 - 16:04 | 589892 Dburn
Dburn's picture

Didn't anybody take cash advances on their cards to short bank stocks in 2008? What a terrific account payable call. "Sir, you are 90 days late on your credit card payment. " "Yeah, hey sorry about that and I also would like to thank you for the 6 figure line of credit that I'm currently making a bloody fortune off of shorting your stock. If you could wait about 15 days , I'll pay you when the calendar year passes. ok?" "You are using our cards to short our stock...I ah....click...bzzzz.

 

Sat, 09/18/2010 - 17:10 | 589949 rosiescenario
rosiescenario's picture

...just a friendly reminder that you allocate a bit toward the purchase of ammo and a few of the tools that it is used in...good time to be brushing up on your skills at the local range....Front Line and Thunder Ranch offer some useful educational courses, especially if your liberal arts degree did not include marksmanship...it was lacking at Harvard.

Sat, 09/18/2010 - 17:35 | 589970 Saxxon
Saxxon's picture

Bet my FICO (820) is bigger than yours.  I plan to do the same thing if the Fed will let me.  Due to the current admin's bailout policies the responsible are being fucked into paying for the irresponsible; but that cannot last long.  Yes, I think they will come to us.

Sat, 09/18/2010 - 21:42 | 590182 chunkylover42
chunkylover42's picture

FICO envy?

Sat, 09/18/2010 - 21:47 | 590190 RockyRacoon
RockyRacoon's picture

Well, as my second wife once said, "It's not the size of the wand, it's the skill of the magician".  My skills at maneuvering thru the credit world and finessing the system are pretty good after all these years.  Betcha I can amass a larger fake fortune!

Sun, 09/19/2010 - 10:18 | 590514 Miramanee
Miramanee's picture

I agree with what I read here today. The next bubble, the great inflation, QE2...whatever you want to call it...any access to credit in the future will not spur growth, it will precipitate a desperate on credit, a last grab mentality. Of the many fatal mistakes being made today by our political and economic leaders, perhaps the greatest is the belief that they can reverse the current bust mentality that is moving the herd toward desperate and dramatic measures. AND, with the middle class increasingly caught between the metaphorical rock and hard places of massive COST inflation while access to money and credit contracts (Deflation), ANY and all crexit that somehow trickles down to the middle class will be gobbled up and used NOT to reconstitute the consumer economy, but to prepare for the tidal wave of systemic dislocation that people now unconsciously feel is inevitable.

Sun, 09/19/2010 - 10:25 | 590522 Miramanee
Miramanee's picture

Desperate RUN on credit

Lest we forget or ignore our sordid and sorry past, ALL credit expansions ends in busts. All of them. And the current credit bubble, the one that has been building since Tricky Dick defaulted on our gold obligations in 1971, is by far the largest and most systemically malignant expansion in the history of humanity.

What we will expeience in the years to come vis credit will be pretty frightening, as ANY access to new credit that makes it's way down to the tens of millions of middle class citizens will be treated like truck loads of food are treated by starving Ethiopians.

Sat, 09/18/2010 - 18:32 | 590028 living on the edge
living on the edge's picture

Brilliant Rocky. I have a question however, did you get your idea from the Federal Reserve charter?

Sat, 09/18/2010 - 21:51 | 590192 RockyRacoon
RockyRacoon's picture

Nah.  I'm just naturally sneaky.  I've paid attention to the machinations of the credit ramped economy and savored the possibilities.  You could say coon curiosity.

Sat, 09/18/2010 - 20:16 | 590116 hangemhigh
hangemhigh's picture

Rocky:

something like that here too.  critical path part of survival based exit strategy.  bang them fico scores higher then use them to finance carefully camoflagued escape routes............

Sun, 09/19/2010 - 08:24 | 590444 Incubus
Incubus's picture

I've been doing this as well; it's a game of chicken right now, and I think we'll bring them to their knees before they get to fleece any of us again.

 

Sun, 09/19/2010 - 22:56 | 591332 Laura Ingalls
Laura Ingalls's picture

I understand the temptation but I wouldn't do it. 

A person I believe had an inside track with God and who predicted the destruction of the World Trade Center, the economic problems we are having now, along with future hyperinflation also predicted that the coming times would be extra difficult for people who were in debt.

Mon, 09/20/2010 - 00:15 | 591415 tomdub_1024
tomdub_1024's picture

seems I am playing this game as well, RR. Seems you have generated a bit of response, I wonder sometimes how many have figured out the "game" and are running with it...and that's all it is, in reality, a "game". I could blow it all, now, and be okay with the results. I have a happy, frugal, life. A few additional luxuries, though old and not valued, I have. They are good enough...my wife, children (non-public-schooled-training-for-Matrix-insertion, they are learning flexibilty in thought, critical thinking, useful skills for the next paradigm) are my base, growing good food, building new things, saving $$$ by DIY and thift stores (and no taxes).

If you are ever visiting the intermountain NorthWest, let me know, gotta homebrew waiting and we can stratergize (apologises to Bush the 2nd)....:)

Sat, 09/18/2010 - 14:18 | 589752 bank guy in Brussels
bank guy in Brussels's picture

Fabulously on-target re the American mentality

One last rodeo, one last grab at the brass ring, one last day of luxury ... because they know it will never be there again.

The way Americans were coached by advertising all these years, this behaviour is no less another creation of New York's Wall Street and Madison Avenue.

Sat, 09/18/2010 - 16:19 | 589903 midtowng
midtowng's picture

It's a society without any morals or culture. No one cares about tomorrow or the next generation. It's all about me, Me, ME!

Sat, 09/18/2010 - 16:31 | 589915 Monkey Craig
Monkey Craig's picture

Great point. With this culture, no wonder the US is going down the tubes!

Sat, 09/18/2010 - 19:27 | 590082 mamba-mamba
mamba-mamba's picture

I can't speak for anyone else, but I have a kid. I care about the next generation. On the other hand, once it becomes clear that the system is rigged and everyone else is cheating, there is no incentive to play by the rules.

But the fault for this sad state of affairs lies with those who rigged the system, not with "regular" people who got fleeced.

Note that I am not suggesting that people should cheat each other. I am only commenting on the relationship of individuals to large banking organizations.

Just my $0.40. (2 cents, adjusted for inflation).

--Mamba-mamba

Sat, 09/18/2010 - 20:53 | 590128 hangemhigh
hangemhigh's picture

midtowng:

you're both right and wrong.  it is a society without morals or culture. but, the rot is clearly a  head down phenomena.

i'm more than willing to play the game the way it's supposed to be played, but when the insatiable trash at the top of the food chain reneges on the social contract and changes the rules to suit themselves, i have no choice but to pay attention and act accordingly.

as for me...me...me, that's their game plan not mine. money, living large, expensive toys, binging on wretched excess....none of that has never meant anything to me.

finally, those in power who were truly in a position to provide for the future well being of  coming generations abdicated all responsibilty for the general welfare when they decided that their individual private interests trumped those of the public at large.

by doing so they set in motion the forces of destruction that now threaten us all............

 

Sun, 09/19/2010 - 10:45 | 590534 grunion
grunion's picture

Speak for yourself!

Sat, 09/18/2010 - 16:30 | 589912 breezer1
breezer1's picture

gives a whole new meaning to ' shop til you drop '. the drop means ' to another scocial status '. among the destitute.

Sat, 09/18/2010 - 17:15 | 589953 rosiescenario
rosiescenario's picture

"shop til you drop"....excellent!!!! ...buy til your bankrupt....spend til your sunk...

...if I were the Chinese I would be very worried about what this might foretell for their factories producing all of our future land fill....

Sat, 09/18/2010 - 14:28 | 589755 Dismal Scientist
Dismal Scientist's picture

Event horizon, bitchez !

Great post, I somehow found it hard to believe that rational behaviour had been widely adopted...

Sun, 09/19/2010 - 00:09 | 590314 kujo
kujo's picture

Rational behavior? To act rationally people need to know the story. Just keep telling the story, people will hear and respond. We need to go through a reset financially, it's going to be a bitch. We'll have to figure out how to respond, be prepared as much as possible. We're going to learn to be neighbors now.

The captcha must be for stoned people tonight. 

Sun, 09/19/2010 - 05:50 | 590404 Dismal Scientist
Dismal Scientist's picture

Starting to save rather than max out credit would be rational. Hence me not being surprised that this has NOT happened. Get it ? Can assure you I'm not stoned.

Sun, 09/19/2010 - 13:24 | 590700 Babalooee
Babalooee's picture

It does seem like the PTB would rather close the gate to the rational path of caution and have us continue spending. Their "success" may not so much be a reaffirmation of the great American way, so much as the signal of an animal no longer caring because there's nothing left to lose.
And as far as being stoned, everyone knows since that first jr, high joint that regaining the high is a mugs game.

Sun, 09/19/2010 - 14:28 | 590772 dogbreath
dogbreath's picture

the game will provoke an extreme irrational response which will give TPTB the justification for a police state and world government.

Sat, 09/18/2010 - 14:32 | 589758 Bob
Bob's picture

Tyler, I'm missing the part of your analysis that documents the hyperleveraging by the "irresponsible." 

I don't see how to accurately reach that conclusion from the coarse aggregate data here--I know that many (I believe most) of the charge-off's are people whose lines of credit were cut off long ago.  It takes time for creditors to finally charge bad debt off, especially with, as we all know, the lengths the banks have gone to over this period to keep bad debts falsely valued on their books to maintain the illusion of solvency. 

My guess is that there have been additional confounding increases in credit/debt taken out by the credit-worthy as well as concurrent deleveraging by significant numbers of the same group.  

I just don't see how you can authoritatively reach the conclusion that you did based on the data presented.    

Not that Deadbeats Prosper! doesn't make for a wonderfully provocative headline. 

Sat, 09/18/2010 - 14:34 | 589772 stev3e
stev3e's picture

I agree, funny number interpretation going on here.

Sat, 09/18/2010 - 14:35 | 589774 Tyler Durden
Tyler Durden's picture

Great point. What we failed to mention is that long before the credit contraction inflection point was reached, the charge offs were long-averaging about $50 billion per quarter. You are absolutely correct that the actual charge off number is a leading indicator to the credit collapse. Also, the fact that it just hit a fresh record in Q2 2010 is likely not good then. Furhtermore, as I am confident you will agree, all that matters is the marginal move, and as such a ratio of $590 billion to $20 billion of forced versus unforced credit contraction tells you all you need to know. (And yes, that $20 billion may consist of $1 quadrillion in new credit issuance... the problem is that it is offset by a $1,000,020,000,000,000 contraction on the other side). Lastly, please point out where in the post are deadbeats singled out? For all we know Lloyd Blankfein has maxed out his 10 Centurions to buy gold and have it shipped to Bora Bora.

Sat, 09/18/2010 - 14:41 | 589785 Spalding_Smailes
Spalding_Smailes's picture

"We may see a blip up in foreclosures and delinquencies."
- Leslie Appleton-Young, Chief Economist, California Association of Realtors

"Financial storm definitely passed."
- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

"[1930 will be] a splendid employment year."
- U.S. Dept. of Labor, New Year's Forecast, December 1929

“The continuing shortages of housing inventory are driving the price gains. There is no evidence of bubbles popping.”
- David Lereah, NAR’s chief economist, August 2005

Sat, 09/18/2010 - 14:50 | 589797 Bob
Bob's picture

Well, of course I would agree with these comments.  It's the thesis of the post, e.g.: This would make all the sense in the world, when one considers that side by side with the observed "deleveraging" of consumers, sales at aspirational store concepts are in fact surging, as the broke middle class performs one last "swan song" rampage of purchasing every Gucci and Chanel bag available, before saying goodbye to credit for a long, long time . . . that I was questioning. 

Perhaps I was taking your representation of the aggregate as "The Broke Middle Class Consumer" too literally.  Yet, the quote above does seem to beg for it. 

It would be nice to know what's going on in more specific detail, though, yes?

Sat, 09/18/2010 - 14:50 | 589800 Spalding_Smailes
Spalding_Smailes's picture


"One of the reasons we think this market will start to run out of gas at some point is that you've essentially created as much gold from straw as you can from this financial alchemy,"

- Scott Simon, mortgage chief at California bond house Pimco.

Sat, 09/18/2010 - 14:53 | 589804 Tyler Durden
Tyler Durden's picture

Specific detail would come in the form of channel checks for rising ticket purchases at Barney's, Nordstroms, and Saks cross referenced by FICO score of the buyer. This information is strictly private. Yet it will go public once marginal credit is tapped out and same store sales tumble. Check in in 4-6 months.

Sat, 09/18/2010 - 15:03 | 589825 Bob
Bob's picture

Now that will be interesting as hell!  Thanks for the insight.

Sat, 09/18/2010 - 18:15 | 590010 Miles Kendig
Miles Kendig's picture

Eventually the spectators will see the game.

Sun, 09/19/2010 - 14:58 | 590809 hedgeless_horseman
hedgeless_horseman's picture

No need to wait 4-6 months for confirmation. You can already see it in healthcare, where higher deductibles and co-insurance amounts have already forced consumers' hand. 

Sat, 09/18/2010 - 15:56 | 589873 Dburn
Dburn's picture

I feel fairly confident with the idea that consumers who knew their finances were frail or were looking at a job loss in the near term, heard about the gradual but accelerating cuts in personal lines of credit cards from friends or family. If people felt that production income sources were drying up like when a plant puts out a notice it will be closing in 60 days , then it would be smart to do what Ford did;  get it while you can because there isn't going to be anymore.

As to what they bought, despite the numbers at Nordstroms and other upscale retailers, I feel uncomfortable with laying all that credit usage off on purchasing luxury items. It sounds like there's a little  elitism in that conclusion, as if someone were writing about what they expect lower income people would do and using a upscale stores sales increases to buttress that stereotype. Compare the total increase in dollar terms to the forced de-leveraging and I doubt it would even come close. Making a statement like that almost demands some data sourcing to back it up so comparisons to forcible deleveraging numbers and increased sales at luxury stores could be compared. With a final pop of what percentage of those sales were people maxing out their credit .

It reminds me of the the Cable TV assumption I 've seen here and else where; where it's assumed a significantly high amount of people who are jobless watch their cable TV all day when they could be saving the money and looking for a job. Cable provides two essential services besides TV; Telephone and Internet, both an absolute requirement for job hunting and networking these days. Basic Cable is provided free when purchasing Phone and Internet service. People have to spend less than a $100 to make it compatible with their TVs.

People could also be using it like this http://www.theimagefactory.com even though I have been doing this for 14 years. So it's unrelated to any job search but definitely the best deal going when I get three or four people who pay me to host their sites and email while letting them them use the mail server to send oversize files.Plus being able to avoid the cost of co-locating a server. That pays for all of it. Yes the big Poster machines are in my living room which is probably why I'm still single.:-( Come-on a 400 pound 105" printer doesn't look that bad upstairs and down..? , I think it's a great substitute for couches myself. Couches only give up change. These babies make money.

Being able to Blog to show people unique skills that you have or putting up a free brochure website about ones self also requires access. If people would learn the skills of putting up a site about themselves with say a video interview of someone asking some real tough questions based on a resume that is beside the video window, recruiters would probably like that. Also providing a download for text resumes for their databases would come in handy.

Who knows, people are making a living blogging these days. For some it's a multi-million dollar venture for others they get enough to pay the groceries and yes; the cable bill. That makes me wonder why we see these assumptions make it's way into people's comments and posts. This may be a ticket out of poverty for some, not a huge number , but some of the more desperate/ambitious people out there. For people who are writing about the obvious elitism at the top with seething hatred as it sucks out the wealth of the country, these assumptions seem somewhat hypocritical just like the Gucci Handbags analysis.

My guess is , much of the usage went to cash advances to create a cash cushion where once that cushion once was their credit cards , purchasing of other essentials that they had put off and off course paying their bankruptcy attorney from their credit cards. Even that wouldn't amount to  much though is a million people did it, it might come in at 2 billion.

While I'm sure a percentage went to Nordstroms and other garbage cans masquerading as fine stores that are soon to be boarded up as testaments to a once proud culture that defined itself by the value of material goods in their possession, which was not the private domain of the financially Challenged population.

I feel reasonably safe with the idea that spending was spread out over much more of the  needs side of the shopping list not wants, especially if they have kids.

Use it or lose it.

Sat, 09/18/2010 - 16:53 | 589932 Spalding_Smailes
Spalding_Smailes's picture

"Three or four million heads of households don't turn into tramps and cheats overnight, nor do they lose the habits and standards of a lifetime... They don't drink any more than the rest of us, they don't lie any more, they're no lazier than the rest of us.... An eighth or a tenth of the earning population does not change its character which has been generations in the molding, or, if such a change actually occurs, we can scarcely charge it up to personal sin."

– Federal relief administrator Harry Hopkins, 1933

Sat, 09/18/2010 - 17:18 | 589955 Miss Expectations
Miss Expectations's picture

Cut off is cut off.  It matters not where you shop.  Two times in the last 10 days the food shopper in front of me was all bagged up and ready to go when the cashier let them know that their card had been denied. 

Sat, 09/18/2010 - 17:54 | 589990 Bob
Bob's picture

But since this envious suspicion that other folks are living large for free (regular people, not the banksters) seems to relentlessly creep into people's perceptions and prescriptions, I think Tyler's finer analysis to come will be a great service to all. 

Damn, cut off at the grocery store . . . that's worse than most of the other places one can suffer this embarrassment.   Did you get a read of other people's reactions to that?  I would suspect alot of relief and sympathy for most. 

Sat, 09/18/2010 - 21:16 | 590164 Bringin It
Bringin It's picture

MissE - re. cutt off at the check out counter.  Can you give some demographic background to your anecdote?  Like what region of the Homeland?  Urban/rural/suburbia?  Thanks

Sun, 09/19/2010 - 07:56 | 590435 Miss Expectations
Miss Expectations's picture

Wilmington, North Carolina.  We are surrounded by rural, not particularly urban.  I would discribe this area (primarily) as newly developed sprawl, with a large dash of Civil War History.  We are Cape Fear.

Sun, 09/19/2010 - 10:56 | 590542 grunion
grunion's picture

the worst was the lady of Latin descent purchasing a cart full of beautiful meats and vegetables. Paid for it with a Lone Star card (Food stamps). Then took her groceries and packed them in her 2008 Suburban with Mexican tags and took off for Mexico.

I was very annoyed by this...

Sat, 09/18/2010 - 19:20 | 590076 Saxxon
Saxxon's picture

I'm not buying this conclusion, at all.  Agreed, it is a snobbish look down the nose at the little nigger-rich peeps out a'spendin' without a care.  I just don't see this happening.  People in my area are obviously pulling back, not buying labels like the nouveau-riche Shanghai chicks, for instance.

Sun, 09/19/2010 - 08:41 | 590470 tip e. canoe
tip e. canoe's picture

your accusation of implicit racism may have had more validity had you not committed the very same error in the very same paragraph.   just a thought.

Sat, 09/18/2010 - 14:59 | 589819 Oracle of Kypseli
Oracle of Kypseli's picture

Tyler,

We need some quantum theory 101 to grasp the enormity of the bang. 

Talking about quadrillions.. In February this year I googled the word and got 401,000 hits as I posted on #574753. It is now 1,530,000 hits

People are getting it.     

Sat, 09/18/2010 - 15:58 | 589889 Kayman
Kayman's picture

Thanks Tyler

I was having a little problem with the narrative and the math.  At the margin there are people who simply cannot/could not survive, so playing the fiddle, drinking the wine and watching everything burn is a fine way out.

The "newfound" savers likely do not exist.

Sun, 09/19/2010 - 11:00 | 590544 grunion
grunion's picture

Oh, they most certainly do exist!!!

Sat, 09/18/2010 - 14:29 | 589766 Confused
Confused's picture

Thanks for sharing.

 

Makes me feel silly to have paid bills and keep current. :P

Sat, 09/18/2010 - 16:03 | 589891 Eternal Student
Eternal Student's picture

Ditto. And here's something to make us feel even sillier. This article reminded me of one of Diana Olick's columns from a few months back, when she went to Las Vegas for a Real Estate convention. As we all know, Vegas has been one of the most hard hit areas in terms of the subprime mortgage mess.

Now, you'd think if someone did a strategic default that they'd be cut off from getting credit for a long time. That's not how it works when everyone is defaulting.

What the article pointed out is that the Banks still need to lend and make money from loans. So, they were making loans again to people who wouldn't qualify elsewhere.

So if all American consumers stiff the Banks, it doesn't necessarily mean that they won't get Credit again soon. Nor is it any guarantee, of course, that they will. I just wanted to point out that things aren't as clear cut as one would think. And that paying off one's bills, and keeping a high credit score, may not be as advantageous as one would think.

But I'm going to be taking the conservative approach, myself.

Sat, 09/18/2010 - 17:44 | 589978 buzzsaw99
buzzsaw99's picture

That is the flaw in the entire premise of this post. The banks and gubbermint are in league with the deadbeats. Deadbeats spend, deadbeats borrow. The banks are dishonest, d.c. is dishonest, and so are the deadbeats. There will be no collapse because the fraudCONme will continue forever without end.

Sat, 09/18/2010 - 19:39 | 590091 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

fraudCONme will continue

The fraud will continue for the banks and D.C as long as the deadbeats keep getting new credit and paying. Once that comes to an end, the musical chairs will stop for the deadbeats. Bet on it!

 

Sun, 09/19/2010 - 14:52 | 590800 MachoMan
MachoMan's picture

You are right to take your conservative approach.  Everyone who is participating in the strategic default thinks that they'll be in common league with everyone else...  this is only mostly correct.  The records of your default will continue in perpetuity.  All future creditors will be aware of your "strategic" past.  Getting additional credit at this juncture, when no deals are available, is not strategic... 

There will come a time, in our lifetimes, in which the opportunity will be presented for incredible wealth.  It will only be presented to a few and the only thing you can do is give yourself the most time possible to watch what happens and to place your bets with the utmost in research.  These opportunities do not come by but every ~100 years.  Play wisely and you can ensure a couple generations of your descendants will be taken care of...  play poorly, and you may find yourself surrounded by a glass bubble (most already have).

The concept of not having a ~caste system is simply untenable.  The playbook is presently scripted to require a high credit score to succeed and to give yourself any chance (through credit) of being able to place a wager on the winning horse.  Right now, we track money all over the carpet with our shoes and the money vacuum cleaner sucks it all away in a seemingly neverending cycle.  Well, the money drought will come soon enough and you can rest assured that any attempt to fuck over the government or its banking cartel will be met with punitive resolve.  And, if not, their successor(s)will be keenly aware of your previous activities.

Sun, 09/19/2010 - 18:39 | 591038 wisefool
wisefool's picture

I just wish I could see what that decision point is and when. Sorry for the ramble. Feel free to ignore/junk 'cause This is probably the worst thing I have ever written since 3rd grade. But I am sincerely and soberly at a point of great analysis paralysis.

I personally can not see it being PMs. I don't want to get into the "you can't eat it/it is the oldest respected form of money debate" -- because to me -- it is too well argued on both sides. Literally a ZH. a great store of value but not a panacea. If it turns out that was the play and I missed it, I wont feel too bad. In fact I'll gladly and sincerely  tip my hat to a goldbug if s/he'll let me clean their pool for a wage.

In my particular situation:

-I could hyper lever up as discussed and hope to pay it back with inflated dollars. But that is a huge risk putting collateral down, especially considering all the legal wrangling reported here. (forclosure,claw backs, nationalization of certain companies GM I am looking at you)

- I've got a good FICO, and would never strategically default, but how much risk can a person take to catch this great opportunity/falling knife edge? 7 years, 10 years, whatever reporting duration used to calculate the score means nothing. Given our level of data retention and availability, it would be stupid for any bank, supplier, service provider, employer, etc to not insist on full disclosure. I.E. "we will access all of your records. We will make our our credit/character score. If you don't like it, take your business down the street" 

- Also, since I am not into the PM thing and don't trust the market, what would I lever up to buy to resell/rent?

- And back to the pool boy analogy. I am capable of working hard 70-80 hour weeks. But I could also live off of savings if it came to that. If the taxation, logistics, work related expenses make it not worth going into the grind everyday with a bunch of  jerks (natural personality and/or recession based bad behavior) My skill set pays okay, but its not one of those "love what you do" careers. Especially if the the wages are going to be marginalized by this great opportunity/risk we are talking about.

Like, what if we don't get hyperinflation or default/deflation, but end up getting a new fiat currency created? With some type of exchange rate that keeps the status quo going and makes me become a debt slave even though I've avoided it for so long and got none of the perks? (bitchez, toys, trips, huge brokerage account earned trading on margin)

Is ex-pat'ing safe when if trade/currency wars fire up you are a rich american in Ireland/Greece, Mexico, etc?

Terrible. Terrible complexity to work through. But I agree there will be people who make the right choice and essentially become minor feudal lords in a way that is safe/fair/ethical enough that the mob tolerates it. On the other end, I can see a fate worst that debt slave (untouchable) that will also be endorsed/accepted/shadenfruedened by the rest of the mob.

I guess I'll spend the next few months trying to figure it out. Being lurking for over a year now. Thanks ZH. Analysis paralysis. I don't see a collapse or Mad Max. But I agree that there is a game changing opportunity/trap coming soon.

Sun, 09/19/2010 - 21:33 | 591273 MachoMan
MachoMan's picture

Whether or not we get mad max, it's going to be painfully obvious to the resourceful (rural) that the only reason many of them have no idea of the pains of the deflationary death spiral is because some semblance of society and blissful remembrance of yesteryear keeps people throwing their lives away to recreate it (despite it being a complete illusion from inception).  Many say "let it come", well, before this is over, they will be the ones wishing the herds were driven back to their suburban hibernation grounds.

Sun, 09/19/2010 - 22:56 | 591343 wisefool
wisefool's picture

That is the terrible aspect of this complexity. Hope is one thing. Abortion is another.

Sat, 09/18/2010 - 14:31 | 589768 nope-1004
nope-1004's picture

Gotta love the American Dream.

One mode with balls out:  High income, hyper consumption.

As income in real dollar terms has been declining, credit has been increasing, keeping the American Hyer consumption Dream alive.

Nothing to see here.....  move along & buy more shit.

Sat, 09/18/2010 - 14:36 | 589776 msorense
msorense's picture

I personally know someone who is doing this right now - getting everything they can with their credit card until they are cut off.  People are seriously preparing for end times. The analysis above would not surprise me at all.  I hope to prepare too but I have been confounded by this market.

Sat, 09/18/2010 - 15:02 | 589824 1100-TACTICAL-12
1100-TACTICAL-12's picture

I to had a hunch this was was taking place,same with 401k's. Prepare for the worst hope for the best...

Sat, 09/18/2010 - 14:36 | 589777 Pondmaster
Pondmaster's picture

"Do as I say, not as I do."  The consumer has had a terrible example set on saving , paying off debt . Literally none from the media , none from the schools , and the last two generations , 20 to 40 yrs olds , precious little finance education from parents . Keeping up with the Jones's and peer pressure on all to have it all , patince as a virtue in saving for a goal is non existent . The few wise will prosper as the house of cards falls for the majority .  I was taught to be a rebel with a cause . Don't buy into the marketing B.S. , the gotta have it frenzy . Guess I was born to early , 1955 to be duped .  ZH helps continue the proper education. Great article TD , going against what we have been lied to about. Consumer deleveraging indeed . I like the step chart , very self explanatory    

Sun, 09/19/2010 - 07:35 | 590425 snowball777
snowball777's picture

Yeah, we're real 'joiners'...

http://www.youtube.com/watch?v=ecG-JKiCu_8

Transmission

third world war

third round

A decade of the weapon of sound above ground

No shelter if you're lookin' for shade

I lick shots at the brutal charade

As the polls close like a casket 

On truth devoured

A Silent play in the shadow of power

A spectacle monopolized

The camera's eyes on choice disguised

Was it cast for the mass who burn and toil?

Or for the vultures who thirst for blood and oil?

Yes a spectacle monopolized

They hold the reins and stole your eyes 

Or the fistagons 

The bullets and bombs

Who stuff the banks

Who staff the party ranks 

More for Gore or the son of a drug lord

None of the above fuck it cut the cord

Lights out 

Guerrilla Radio

Turn that shit up

Contact

I highjacked

the frequencies 

Blockin' the beltway

Move on D.C. 

Way past the days of Bombin' M.C.'s

Sound off Mumia guan be free

Who gottem yo check the federal file

All you pen devils know the trial was vile

An army of pigs try to silence my style

Off 'em all out that box 

It's my radio dial

Lights out 

Guerrilla Radio

Turn that shit up

It has to start somewhere

It has to start sometime

What better place than here

what better time than now?

All hell can't stop us now

Sat, 09/18/2010 - 14:38 | 589778 hedgeless_horseman
hedgeless_horseman's picture

My crystal ball shows that jubilee will only be for public institutions.

Sat, 09/18/2010 - 17:52 | 589988 DoChenRollingBearing
DoChenRollingBearing's picture

I keep seeing that word "jubilee"...

Good things happening to someone else?

I guess that if we want to prepare for a jubilee, that we creditors / savers ought to cash in what we can soon.

Gold is a good ticket out of town.

Sun, 09/19/2010 - 08:00 | 590436 THE 4th Quadrant
THE 4th Quadrant's picture

Who would have thought that ZH would turn into such a religious, doomsday, goldbug site.

What a shame.

Sun, 09/19/2010 - 15:10 | 590822 akak
akak's picture

As it is unlikely that anyone is holding a gun to your head and forcing you to read the comments here, you are welcome to go elsewhere if you are not satisfied by the quality of discussion here.  Judging from your dismissive tone and your jabs at the usual strawmen raised by those who still refuse to open their eyes (and minds), I might suggest RedState, Salon, Wonkette, or any of a host of other inherently pro-establishment, pro-status quo forums.

Sat, 09/18/2010 - 14:37 | 589779 Dehrow
Dehrow's picture

This actually makes a lot of sense, because why stop doing something if you don't have to? families are moving back in with each other, which means the person who is bringing home the bacon needs to borrow more to provide for everybody. In addition, mentally, most people would maintain their spending habits even if it meant that instead of being able to pay it all back in six months it would take nine months to pay off the debt. Lastly, maybe before the masses were just borrowing what they thought would be acceptable, but now, a lot more people are borrowing to finance things that they need as opposed to what they merely wanted.

Sat, 09/18/2010 - 14:42 | 589788 Miles Kendig
Miles Kendig's picture

Ahhh.  Wants n needs once more.

Sat, 09/18/2010 - 23:52 | 590303 Milestones
Milestones's picture

amazing,no?? My guess is that a whole hellva lot of the buying is for mainline necessities-including ammo and some trinkets to use it. The relly, really hard line nitwits are doing the Gucci tango. They will be at the head of the breadline.

If the post is close to right, what is coming ought to be something to behold.   Milestones

Sat, 09/18/2010 - 14:45 | 589793 nope-1004
nope-1004's picture

I also think that people seeing troubled banks being bailed out feel deep down that somewhere down the financial line if they themselves don't pay their Visa bill or LOC, the gov't will simply bail them out and all will be forgotten.

 

Sun, 09/19/2010 - 11:09 | 590548 grunion
grunion's picture

I paid down my debt because I promised to do so. I paid off my debts and have no desire to incur more debt at this time. Mainly because of this mess but I avoid debt like the plague.

Guess I'm just a lonely 'ol outlier.

Sun, 09/19/2010 - 14:58 | 590811 MachoMan
MachoMan's picture

You are not alone.  There will come a time when everyone with negative equity will be wiped out and be semi-permanently/permanently placed into a glass box of the lowest class in the country.  Credit score is going to be a report card on who gets to crack the whip post collapse.  You follow the rules and you play nice, you get a whip.  You default or strategically run up bills, you get whipped.  Simple as that.  Best of luck getting out of the country and finding a safe harbor for your money.  We are the world's black hole. 

Mon, 09/20/2010 - 09:58 | 591655 fajensen
fajensen's picture

Credit score is going to be a report card on who gets to crack the whip post collapse.

Surely you jest: A good credit score, like a clean criminal record, is only useful for coercion for exactly as long as the majority have one (and still have something to lose)! After "everyone" has blown their credit rating away, it becomes irelevant; if there is nobody qualified to borrow or for a job with a "good" credit score, then they will find some other way to determine who qualifies; like, Oh The Horror, competence or marketable skills, f.ex.

Here in Denmark, they made a law that carrying any kind of knife will get you 7 days in prison - after a few teachers e.t.c. got a criminal record because of it; they are beginning to qualify the legislation to disable the law as written (no politician EVER revert a stupid decision) because they obviously realised that, once enough criminal records had been printed, it would be useless: Within a  decade Everyone would have aquired one!

Mon, 09/20/2010 - 10:14 | 591769 MachoMan
MachoMan's picture

If you believe the principals of democracy and majority rule are in place, how do you explain the wealth gap and mountain of legislation ensuring classes on our society and glass ceilings for all but the top?

Not only will a poor credit score affect you now, as funding dries up, but it will also affect you when the real time comes to lever up...  and you do not get to participate in the backside scramble.  Further, your credit score will affect what jobs you are able to get as well as where you are able to lay your head at night.  These records exist in perpetuity.

We have a country that is run by the top 1% (probably more like top .00001%).  If you are naive enough to think that there will be no more repercussions from strategic default, you are nothing short of incredibly naive.  Look at the trend with regard to dischargeability in bankruptcy...  is it becoming more or less stringent?  Student loans?  Our frog is getting boiled.

Even if the system as we know it collapses and persons/entities completely disassociated with the present calamity rise to power or prominence, they will have the records of your default.  When assessing fairness in the future, I can assure you, your report card will be stuffed in your face.  We're in the process of determining who gets to participate in what little wealth will be available post collapse...  and that determination will largely be based upon santa claus' little list.  Don't get left with coal. 

It doesn't matter if everyone else has a poor credit score because everyone is going to be poor...  our standard of living massively reduced...  and only a select few will get whips.  Whether or not you want to be an amicable and congenial slave owner is your business, but I would personally prefer to have the choice.

Tue, 09/21/2010 - 05:20 | 594246 fajensen
fajensen's picture

If you dream is to become a kapo, then sucking up and earning your perfect credit score is absolutely not the way to go about things, you are just one of the grass. Even as a survival strategy, it sucks: They shoved them into the ovens too, at the end - because, nobody can afford to trust a traitor!

Look at what happened in USSR: All official structure disappeared, it was down to the basics; who you know, what you can do to/for people. Connections. Credit score??? Hahhahaha - The "currency" was Vodka and Groceries! Only the oligarchs still used banks and real money - ironically, credit scores do not apply at that level - in any case they would not have lend to You or Me. 

I.O.W: If society does not collapse the same way the USSR did, the banks will be forced to lend to everyone and their dogs to keep credit expanding. If is does collapse you will not be able to borrow one cent unless you happen to be one of the oligarchs. Maintaining your credit score is a useless burden.

PS: I think democracy is long dead in most western countries.

Tue, 09/21/2010 - 08:25 | 594349 MachoMan
MachoMan's picture

The middle class exists, by definition, as a buffer between the oligarchs and the poor.  In this sense, there will always be a need for persons outside the oligarchy to get table scraps.

I pay my debt obligations because I promised to do so and I have the means and if not, then I figure out my best to get the means within my moral confines...  it's as simple as that.  I'm just arguing that strategic default may not be the panacea or uber solution most people think it's cracked up to be.  There are risks...  and I suspect that given the perpetual nature of the debt records (see fight club), that a good credit score is a pre-requisite to any chance at upward mobility.  In other words, if you derive your fortune through strategically fucking over your creditors, who fucked over the rest of the populace (e.g. taxes/uber sovereign debt) to help pay for your default, your fortune may not be well received. 

In short, if all you get out of the deal are some mortgage payments, then I would shy away...  if you can lever up and hit the motherload with some gold or other opportunity, then that's another story...  but I don't see leverage getting you anywhere but broke at this juncture.  

Sun, 09/19/2010 - 11:26 | 590563 grunion
grunion's picture

I paid down my debt because I promised to do so. I paid off my debts and have no desire to incur more debt at this time. Mainly because of this mess but I avoid debt like the plague.

Guess I'm just a lonely 'ol outlier.

Sat, 09/18/2010 - 14:40 | 589782 Miles Kendig
Miles Kendig's picture

It has been made plain that the only job for American's is to SPEND.  Spend like there is no tomorrow.  Spend until they cannot spend any more since much of the world is dependent upon this sickening, corrupting codependency.

Sat, 09/18/2010 - 16:07 | 589895 Kayman
Kayman's picture

Spend to keep China employed.

Sat, 09/18/2010 - 18:19 | 590014 Miles Kendig
Miles Kendig's picture

And Japan, Germany, Taiwan, Indonesia, Vietnam, Mexico, Colombia, India, Brazil, Saudi Arabia and more...

Sat, 09/18/2010 - 21:37 | 590178 Big Corked Boots
Big Corked Boots's picture

Old bumper sticker: "Keep Working - Millions on Welfare are Depening on You."

 

New bumper sticker: "Keep Spending - Millions of Workers are Depending on You."

 

Or, to be more succinct... http://shop.moderntoss.com/images/104.jpg

 

 

Sun, 09/19/2010 - 05:57 | 590406 Dismal Scientist
Dismal Scientist's picture

A Modern Toss fan. They do a shopping bag which sums it up neatly.

'Buy More Shit Or We're All Fucked'.

Sat, 09/18/2010 - 14:42 | 589786 Kali
Kali's picture

"The New Frugal Normal" described by Rosenburg sounds like the relationship between a drug addict and his dealer.

Sat, 09/18/2010 - 14:45 | 589794 Miles Kendig
Miles Kendig's picture

As they stop only to bump...

http://www.youtube.com/watch?v=HUrpWVFnmcI

Sat, 09/18/2010 - 19:31 | 590086 Kali
Kali's picture

Zoom!  Kaboom. 

Sat, 09/18/2010 - 14:49 | 589787 RockyRacoon
RockyRacoon's picture

How has the discussion come this far without a mention of the gold question?  Here is some interesting commentary on how gold will perform in either a high interest rate scenario and/or the deleveraging phenomenon:

http://www.caseyresearch.com/displayCdd.php?id=539

Note the charts showing the differences in debt levels in the 1980s compared to now.

...gold’s stunning rise in the second half of the 1970s occurred during a period of strongly rising interest rates. So, rising interest rates and rising gold prices are not mutually exclusive.

 

...debt is the single biggest economic challenge facing the U.S. – and much of the developed world. In time this debt will get resolved, it always does, but it’s not going to be pretty.

 

Sat, 09/18/2010 - 16:41 | 589921 Monkey Craig
Monkey Craig's picture

Great post Rocky. I own gold (and have bought it since 2000) as a hedge  from poor government policy, global war (I'm still expecting something in the Straits of Hormuz), and to keep money away from these  banksters.

Gold did great in the 1930s and 1970s thanks to deficit spending and poor central planning from Treasury/Fed interventionists.

Sat, 09/18/2010 - 16:55 | 589934 nuinut
nuinut's picture

Gold will be seen to have done much better than either of those examples, once we reach the other side of The Consolidation.

Sat, 09/18/2010 - 18:02 | 590001 DoChenRollingBearing
DoChenRollingBearing's picture

So now we have a FOFOFOA!  So what comes next, Yet Another Friend Of FOFOA (YAFOFOFOA)?

On some of my comments at fofoa.blogspot.com, I give myself the title FOGARB (Friend Of Gold And Rolling Bearings).

Sat, 09/18/2010 - 21:58 | 590200 RockyRacoon
RockyRacoon's picture

I've suggested FO3A.  How does that sound?

Sat, 09/18/2010 - 22:42 | 590238 Snidley Whipsnae
Snidley Whipsnae's picture

What about Goldfarb?

Sun, 09/19/2010 - 15:00 | 590813 MachoMan
MachoMan's picture

Monkey, do not expect us to attack iran...  it is not going to happen.  Just noise to keep the charade going longer.

Sat, 09/18/2010 - 14:49 | 589799 Pillage
Pillage's picture

Even a yappy dog is a well behaved one when he gets knocked out.

Sat, 09/18/2010 - 15:10 | 589801 williambanzai7
williambanzai7's picture

Let the jackasses that mailed all those credit card, HELOCs and blank check promotions along with Verizon Fios flyers... "burn baby burn"!

FICO 300

http://williambanzai7.blogspot.com/2010/09/fico-300.html

 

Sat, 09/18/2010 - 14:59 | 589817 bugs_
bugs_'s picture

A very troubling post Tyler thanks.  It is inconsistent with what I see on the ground here and what I had hoped was happening at the micro level.  If the glass is less than half full this delays any recovery even more.  A widespread voluntary healing of individual balance sheets was the only potential energy available for any turn.

Sat, 09/18/2010 - 15:05 | 589828 Pondmaster
Pondmaster's picture

The portion of below article by J. Mauldin on deleveraging flys in the face of the step chart . How does one reconcile and sort the data differences . Mauldin a "bull" , ZH a "bear" ?

 

http://www.frontlinethoughts.com/pdf/mwo091710.pdf

Sat, 09/18/2010 - 15:16 | 589840 RockyRacoon
RockyRacoon's picture

Gary Shilling wrote that piece.  That should explain all.  Not sure how you came away with a bull scenario:

We've made our case for very slow U.S. economic growth in the quarters, indeed the years, ahead. The economic rebound due to the inventory cycle is over. Employment and consumer spending remain weak. Housing is too overburdened with excess inventory and the resulting price weakness to revive any time soon. State and local government spending and employment are retreating. And meaningful export gains are unlikely as economic growth abroad slips. Interestingly, the consensus forecast is moving toward our position as growth estimates have been reduced rapidly in recent months. In both April and June, the Wall Street Journal's poll of economists (not including us) expected 3% economic growth in the second half of this year. We wonder if they still do.

Sat, 09/18/2010 - 15:25 | 589856 Pondmaster
Pondmaster's picture

My "beef" was with the deleveraging portion by Mauldin /Shilling only as it pertained to Tyler's piece . Shilling sez we're saving , paying down debt . Tyler obviously not . Who's zoomin whom .  I don't follow Shilling , and infrequently read Mauldin . I think he is somewhat polly-anna . Though being an optimist has its advantages ... as well as dangers

Sat, 09/18/2010 - 15:55 | 589887 RockyRacoon
RockyRacoon's picture

I see your point.   Shilling is looking at too many variables to make a detailed analysis of any one in particular.  Each of those sub-headings in the article could be a book -- an outdated one by the time it hit the retailer.

Sat, 09/18/2010 - 15:08 | 589833 Something Wicke...
Something Wicked This Way Comes's picture

Atlas Just Shrugged. Former Chairman Gobbledegook says buy gold. Linkeration.

http://www.nysun.com/editorials/greenspans-warning-on-gold/87080

Sat, 09/18/2010 - 17:26 | 589964 Quinvarius
Quinvarius's picture

And all week CNBC was alluding to his comments, but spinning them to support the dollar.

Sun, 09/19/2010 - 08:21 | 590442 THE 4th Quadrant
THE 4th Quadrant's picture

Yea, great idea. Take all your fiat wealth and trade it for a hypervolatile metal. Then, as planned, the great conductor signals and the elevator goes down, the doors are locked shut.

Instant reduction in MB. You can redeem your metal for much fewer fiatcons when you are permitted to exit the elevator.

Even more brilliant is the 'Destroy your future purchasing power by purchasing gold with credit cards with intent to default' thesis.

Yes there is plenty of intellectual banter on ZH, but it seems to originate from idiots.

occupations.careers.org/50688/elevator-conductor

Sun, 09/19/2010 - 10:07 | 590511 Zero Debt
Zero Debt's picture

Would you mind to share your trading/investment/wealth preservation strategies?

Sun, 09/19/2010 - 10:52 | 590539 THE 4th Quadrant
THE 4th Quadrant's picture

ZD, as you well know, the gold trade was acted upon years ago by those with vision.

Like buying an investment property in 2008, the risk was not justifiable to this person. At the present time there are other asset classes for those with vision.

In the 4th Quadrant the best trades are executed with painstaking patience.

ZH is not the place for sharing trading tips it is a forum to sharpen your vision against all odds of doing so. The ultimate challenge.

Sun, 09/19/2010 - 11:53 | 590594 Hulk
Hulk's picture

Farmland ZD. And as stated above, 4th quadrant trades require the ultimate in patience..

Sun, 09/19/2010 - 19:08 | 591069 wisefool
wisefool's picture

Isn't that too late as well? How much higher can raw farmland go? Especially considering there is nologer the "sell it for housing development" hedge.

 

I'm Not a gold bug, but I can't imagine the servicing fee on storing gold is anywhere near the cost of land-lording farmland unless you are already a decent sized farming operation. I can't see a newbie beating cash flushed entities like ADM/Con-Agra and closely held big-time agricorps/families to the punch. And what keeps the politicians and school disrits from raising taxes on ag land if they think you are making a profit?

Maybe in a agricultural ETF, fund or something similar with negotiating/lobby power. But Raw land?

 

Sun, 09/19/2010 - 22:36 | 591325 Hulk
Hulk's picture

Pasture farming is going like gangbusters. We have been at it for a year with excellent results. for more info, visit:

http://www.polyfacefarms.com/

Great deals on land exist if you hit the gravel...Quality of life figures in here too

Sat, 09/18/2010 - 15:12 | 589839 PhattyBuoy
PhattyBuoy's picture

If your house is upside down a couple of hundred grand, and you lost your job, or are marginally employed, then personal bankruptcy is a considered reality. There are millions (10s of millions of Americans) in this predicament.

If this is your reality then, why not MAX out all available remaining credit at the end, and have a supernova blow out. If I am going down, might as well be with a bang!  

Sat, 09/18/2010 - 18:43 | 590041 stev3e
stev3e's picture

>>...why not MAX out all available remaining credit at the end<<

 

because its immoral and you're letting the system make you into somone you shouldn't allow them to make you into.

Sat, 09/18/2010 - 21:32 | 590169 Bringin It
Bringin It's picture

immoral??  -  The system's immoral.  When in Rome do what?

Personally, I have almost never carried any debt, but I can understand the greater unwashed having an epiphany and seeing they've been fed a load of BS for years, via the MSM, DC, et. al., resulting in them and theirs getting backed into an impossible situation ...

Is moral hazard only for fat cats?

 

Sat, 09/18/2010 - 22:42 | 590233 zoomer
zoomer's picture

"moral hazard" what a quaint term, haven't heard it used much lately, must have been used in the "olden days".

Sat, 09/18/2010 - 23:26 | 590283 stev3e
stev3e's picture

Apparently, the immorality of it isn't for you.  Why would you think others should be brought down to that level?

I'm one of the unwashed masses and I'm not about to become a rip-off artist with a rationale.

Sun, 09/19/2010 - 08:46 | 590448 THE 4th Quadrant
THE 4th Quadrant's picture

"because its immoral and you're letting the system make you into somone you shouldn't allow them to make you into."

Thank you Stev3e for making note of this important distinction.

I value your comments.

Sun, 09/19/2010 - 11:38 | 590580 grunion
grunion's picture

I concur....For what it's worth.

Mon, 09/20/2010 - 17:03 | 593076 Geoff-UK
Geoff-UK's picture

Respectfully disagree--your taxes, your children's taxes, and your grandchildren's taxes will be at extortionate rates for generations, all to pay for wealth redistribution for poor non-producers, and to reimburse hyper-wealthy banksters who kept profits when they rolled in, and made their losses the responsibility of the govt when they didn't.

There is no morality anymore, financially.  It's dog-eat-dog.

Sun, 09/19/2010 - 13:51 | 590724 Hephasteus
Hephasteus's picture

Really nasty lower self seeks kind caring higher self for abusive relationship.

"When there is sympathy there is abuse. When sympathy fails there is a different kind of abuse." - Me

Sat, 09/18/2010 - 22:45 | 590242 Snidley Whipsnae
Snidley Whipsnae's picture

What has surprised me recently is the number of people using food stamps in the grocery lines I wait in. Way up from a year or so ago.

Sat, 09/18/2010 - 15:13 | 589841 WineSorbet
WineSorbet's picture

I have always said, the American consumer is like a goldfish. Given unlimited food(credit) it will consume until it explodes.

Sat, 09/18/2010 - 15:13 | 589842 Yardfarmer
Yardfarmer's picture

Mort á credit. Death on the Installment Plan.

Sat, 09/18/2010 - 15:13 | 589844 bdrichards
bdrichards's picture

This commentary dovetails with what I am observing in the second tier auction markets, where there seems to be no shortage of buyers in the US$500 to $5000 range. In addition, I am noticing some "bidding  wars" occurring on real estate in the US$150,000 range and below here in Sacramento, California.

Sat, 09/18/2010 - 15:14 | 589847 Something Wicke...
Something Wicked This Way Comes's picture

Bring on the supernova! You only collapse once...that's what I'm talking 'bout.

Sat, 09/18/2010 - 15:17 | 589850 DavidC
DavidC's picture

Completely off topic, for which I apologize, but to show that there is hope for the future;

"Graduation Speech - Valedictorian Speaks the Truth on America's Education System";

http://www.youtube.com/watch?v=Qkss3TkQ-_8

And the transcript on her blog;
http://americaviaerica.blogspot.com/

A bright young woman!

DavidC

Sat, 09/18/2010 - 16:51 | 589927 Bob
Bob's picture

Now that was truly beautiful. 

As someone in a position to know, I gotta tell you that the vast majority of our young would tell you the same thing . . . the difference here being that it's the Champion Apple-Polisher doing it.  You don't see much of that--usually it's off to the Ivy League followed by a life of sucking off TPTB until you get the "well-earned" opportunity to do it to everybody else. 

Thanks for the link!  That should be pushed viral. 

Sun, 09/19/2010 - 11:21 | 590474 THE 4th Quadrant
THE 4th Quadrant's picture

Youtube does practice NetForcing (resultant force is a vector produced when two or more forces act upon a single object). In stark contrast on the same page in the suggested videos you can see:

http://www.youtube.com/watch?v=2uo5L0Bcx5Q&feature=related

NetForcing is a theory of mine that seeks to answer how the freedom of the Internet will be balanced by TPTB. You, the object, goes to Youtube searching for a video. You can gauge how subversive it is to the CIA (strike that I meant to say Google) by looking at their Suggested Videos in the right hand column.

The suggestions are meant to balance your thoughts.

Sat, 09/18/2010 - 15:19 | 589851 idoubtit
idoubtit's picture

"Voluntarily, in the form of actual financial discipline, whereby the end consumer makes a conscious effort to pay down their debt, and Involuntarily, which is really not deleveraging, but aggressive leveraging to the hilt, up until the point where banks eliminate all credit access to the end consumer."

Not really surprising when people have no money.  Reminds me of the statement that Paulson made at the height of the financial crisis when he said something about "people not being to access credit to buy their basic necessities."

Great chart.

 

Sat, 09/18/2010 - 15:29 | 589860 sweet ebony diamond
sweet ebony diamond's picture

Come on Tyler. The politicians and the banks won't ever enforce the reduced FICO scores after default. These people will obtain new credit again and again. All in the name of job creation.

Sun, 09/19/2010 - 10:55 | 590479 THE 4th Quadrant
THE 4th Quadrant's picture

True but false. It is enforced via a premium. You will pay the money lenders, credit creators, a higher premium because of the risk category that YOU put YOURSELF in.

More income for the banksters produced by the brilliance of the Default Club.

Sat, 09/18/2010 - 15:33 | 589861 LostWages
LostWages's picture

The housing market bubble is to blame. When the average Joe watches his home value plummet to the point he is underwater (in my city Las Vegas many are 50% or more under), they are watching their neighbors walking away in droves, many are considering the strategic default option.

A client of mine bought their house near the peak for $410,000 and the value is now close to $190,000. They don’t qualify for a loan mod and their same house is renting for half of what their mortgage payment is. While they are still employed, their incomes have fallen drastically. They owe another $50K for credit cards and medical.

If they stop making their mortgage payment they will live “free” for 10-12 months. The credit cards are maxed out with gift cards that will be used after the BK. The question becomes “how much is your credit rating worth?

Mortgage payments saved, $30K, non-secured debt $50K, negative equity $220K. To them it is worth $300K to trash their credit and for the next five years they live on a paygo plan after the BK is finalized.

They justify it all by watching the banksters getting govt bailouts and the following year pay themselves huge bonuses.

Sat, 09/18/2010 - 15:54 | 589885 Bob
Bob's picture

Which all makes sense to me as well.  Also anecdotally, however, I find that people I know are going Chapter 13, arranging to still pay off all that shit.  Regardless of my advice or the kind of common sense underlying it. 

Then again, if you still qualify for Chapter 7 (since the banksters got the rules of the game changed as preface to The/Their Financial Crisis of 2008) perhaps it's a different story.  

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