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A Detailed Look At The Stratified U.S. Consumer

Tyler Durden's picture


When analyzing the recovery prospects before the U.S. economy, no analysis is complete without a detailed look at the capacity of the U.S. consumer, that dynamo that has always managed to pull the economy out of whatever hole it managed to find itself over the past 80 years. However, permanent structural changes to the economy and the first credit-based recession in decades, could mean the proverbial "this time it may be different" is applicable. Furthermore, the non-homogeneous nature of the concept known as the "U.S. consumer" implies there are many different forces that will shape consumer behavior both now and for the years to come. In this article we attempt to put some of the pieces together and draw some preliminary conclusions.

The delevering consumer

Most of the global political and economic events in recent history can ultimately be traced to the motivations and actions of the US consumer, who directly and indirectly, via an intertwined political /Wall Street complex, has been responsible for not only the bulk of US economic growth, but also was the primary reason for global growth in the last decade. A summary report by McKinsey provides the following frame for the key issues over the past decade (emphasis added):

"Between 2000 and 2007, US households led a national borrowing binge, nearly doubling their outstanding debt to $13.8 trillion. The pace was faster than the growth of their incomes, their spending, or the nation's GDP. The amount of US household debt amassed by 2007 was unprecedented whether measured in nominal terms, as a share of GDP (98 percent), or as a ratio of liabilities to disposable income (138 percent). But as the global financial and economic crisis worsened at the end of last year, a shift occurred: US households for the first time since World War II reduced their debt outstanding.


Over the past decade, rising US household spending has served as the main engine of US economic growth. From 2000 to 2007, US annual personal consumption grew by 44 percent, from $6.9 trillion to $9.9 trillion - faster than either GDP or household income. Consumption accounted for 77 percent of real US GDP growth during this period - high by comparison with both US and international experience."


Yet despite McKinsey's claims, the Flow of Funds report demonstrates that total household debt has stayed relatively constant, mostly as a function of substantial and flat mortgage debt :

And even though total household debt has been relatively flat, consumer debt has indeed been following a deleveraging path, with the most recently released data indicating a $70 billion decline in consumer debt year over year.

At this point it is conventional knowledge that the primary culprit for the consumer credit bubble was Greenspan and his policy of keeping interest rates too low for too long (a policy repeated by his successor), encouraging a borrowing binge:

"Household borrowing rose along with incomes for decades. But after 2000, interest rates fell well below their long-term average because of the combination of US monetary policy and rising foreign purchases of US government bonds by Asian governments and oil exporters. When low rates were combined with looser lending standards, consumer borrowing soared. From 2000 through 2007, the ratio of household debt to disposable income shot up from 101 percent to 138 percent - as much in seven years as in the previous quarter of a century. Even with low interest rates, the ratio of household debt service payments to income rose to a record high.

Most of this borrowing fueled consumption. For instance, from 2003 through the third quarter of 2008, US households extracted $2.3 trillion of equity from their homes in the form of home equity loans and cash-out refinancings. Nearly 40 percent of this - $897 billion, an amount bigger than the recently approved US government stimulus package-went directly to finance home improvement or personal consumption. And much of the remaining 60 percent of extracted cash was used to pay down credit card debt, auto loans, and other liabilities, thus financing consumption indirectly. The money not spent on consumption was invested, helping fuel gains in stock markets and other financial assets."


The biggest concern from a reversion to the mean perspective is that if the ongoing deleveraging trend were to follow its full course, household debt-to-income would have to decline by 27 bps to its long-term trendline, in effect extracting $2.8 trillion from the economy.

One direct consequence of the trend of cheap credit has been an inverse move in the saving rate since the early 1990's. The sharp recent upswing in the chart below indicates that consumers on average are commencing a paradigm shift to frugality as the "wealth effect" evaporates: the increase in consumer wealth lead to an increase in consumption financed by rising asset values. While in the 90's this was facilitated by rapidly rising equity values, its most recent incarnation was manifested in home equity withdrawal as a result of spiking home prices, which translated asset inflation monetization into consumption. The double whammy of a collapse in both the equity market and housing values will ultimately result in an increase in savings rates to long-term averages in the 9-10% range. And, as pointed out above, the adverse economic impact of this transformation in the consumer psyche will likely be in the $2-3 trillion range.

Producer countries provided the US consumer with cheap financing

One of the artifacts of recent binge consumption was a shift in the global trade balance, whereby economies with an advantage in cheap labor or productivity ended up with material positive trade balances (excess exports), while increasingly service-based economies like the US and the EU would not only purchase any excess production, their cheap purchases would be financed by the producing countries transferring their savings indirectly into the US consumer. This explains the desire of China and other sovereigns for US bonds and mortgage instruments. Implicitly, the rapid quenching of the US consumer's insatiable desire for "Made in China" products is the primary reason why the Fed has stepped in so forcefully with purchase replacement mechanisms such as QE which seek to take the place of traditional security purchasers.

The problem in China is the inverse: with the trade balance shrinking rapidly and currency reserves declining, the Chinese government is subsidizing internal production in domestic currency, to stimulate exports to the US, however at lower price points (a deflationary phenomenon), while taking the resultant dollars and funnelling them back into the US in the form of additional bond purchases. The result is a massive credit bubble, as Chinese banks are repeating US mistakes from the early/mid part of the decade and providing cheap stimuli to its producers in an attempt to perpetuate a broken system. Whether or not this is sustainable, one only needs to look at the credit implosion in the US. The question of when the bubble ultimately bursts, however, is much more difficult to answer. However, unlike the one in the US, the Chinese credit bubble will likely have dramatic impacts on both the US and China, due to the intertwined nature of the two economies, both of which are trying desperately to hold on to a world in which the US consumer accounted for 70%+ of US GDP. Of course, with that world now gone, except in the imaginations of Federal Reserve economists, the longer the (anti)symbiotic relationship between China and the US persists, the more painful its unwind will be for both countries.

The stratified US consumer

One reason why delevering trends in the US consumer base are not equal, and have to be analyzed separately, is due to the dramatic schism within the consumer population, specifically the purchasing capacities, limitations and motivations of various income classes in US society. This is an approach that is all too often missing from traditional analyses of the US consumer. In order to properly analyze some of the major undercurrents within the consumer population, Zero Hedge relied on the most recent Survey of Consumer Finances, as well as an August 6 report by Bank Of America, "The Myth Of The Overlevered Consumer."

Three primary drivers determine one's willingness to spend - credit quality, disposable income, and wealth. Yet as the table below demonstrates, there is a substantial disparity in how these three factors impact the two critical classes of US society - the Middle and the Upper class.

What is immediately obvious is that based on estimates by Bank of America, the 50% of US population which makes up the middle class, is responsible for the same amount of total consumption as the 10% of the upper class. Another observation is that the balance, 40% of population considered Low-Income consumers, is responsible only for 12% of total consumption.

A drill down of disposable net income (after tax) and net worth, demonstrates why any discussion of "generic" consumers should be much more properly phrased as an observation of the "Wealthy" and "Everyone else".

The disposable income difference between the richest 10% and even the next richest decile is staggering: a 3x order of magnitude. And a fact that Taleb fans would likely appreciate most, the pretax income difference between the median and mean for the top decile is shocking: $206,900 versus $397,700. This is skewed by a statistically low number of outliers earning an abnormally large amount of disposable income.

The deleveraging of the middle class

Probably the most dramatic observation appears when evaluating relative leverage of the various consumer classes.

It is apparent that the problem of consumer (de)leveraging is actually one of a Middle class burdened with excess debt. The debt-to-income ratio for the middle class is on average more than 200%, almost double that of the highest decile, "Upper Class."

The divergence among the classes is even more obvious when comparing aggregate net worths:

While 10% of the population collects 40% of disposable income, it represents 57% of net worth! This is an impressive conclusion: on a lowest common denominator, the Net Worth variance between the 10% of the population that make up the wealthy and the 50% that comprise the middle class is over 8x! No wonder the aspirational consumer was the most vibrant retail category at the peak of the bubble: if the middle class can not accumulate 8x the net worth it needs to migrate into the top decile, it can at least dress like it. Unfortunately, it did these purchases on credit and is now paying for it (or not).

A derivative and somewhat surprising observation, is that the significant decline in the 1990-2000 decade was driven almost exclusively by the top 20% income earners, who benefitted the most from increased wealth. A 2001 working paper by Maki and Palimbo concludes that as the stock market ramped higher toward the end of the last century, the wealthy benefited the most, and as a result were the income class that reduced its savings activity by the greatest proportion.

The 20% of the population, who benefited the most from the second to last equity bubble (a comparable conclusion can be drawn for the most recent cheap credit-driven bubble), were in fact responsible for a -9.3% change in savings within their own strata over the 1992-2000 period, even more disturbing is that this change accounted for 98% of the overall shaft in the saving rate over the same time period. The consequence of this datapoint is that the recent hike in savings is likely dictated by the wealthiest 20% of the populating saving much more in earnest.

As noted the primary reason for the decline in savings in the late 90's was due to the richest stratum of society benefitting abnormally compared to the "poorer" percentiles. One explanation for this comes in the form the consumption function, which was extrapolated by Case, Quigley and Shiller in the analysis of the wealth effect. It formulaic definition is as follows:

57%*Percentage Change in Pretax Income + 8.4%*Percentage Change in Housing Market Wealth + 5.6%*Percentage in Stock Market Wealth.

The practical application of this formula is that consumers change consumption by 57% of the percentage change in pretax income (or almost 100% of after tax income), with the balance going to taxes and savings. Additionally, a 1% change in housing market wealth leads to a 8.4% change in consumption, while the stock market, perceived as the least permanent, leads consumers to change consumption by only 5.6% per 1% change in stock market wealth.

There are several consequences of this consumption function: primary among them is that the recent push by the administration via various channels to inflate the stock market actually has a much less pronounced impact on the end consumer, as even a 10% increase in the stock market will be undone by merely a 1% change in pretax income (assuming housing values are flat when in reality they are consistently declining). As recent macroeconomic data have demonstrated, the massive slack in the job pool has caused real wages to decline materially. In fact, for an end consumer, a 5% real or perceived decline in pretax income would offset all the "beneficial" implications of the 50% increase in the S&P since the March lows (not even considering the 30% market decline from its highs). The reason for the Fed's nervousness is evident: the truth is that all three of the key psychological metrics that determine consumption are plunging, and absent the recent aberration driven by the abnormal market action over the past 5 months, the consumer has no reason to be cheerful about the future, and to go forth and spen and drive the US (and global) economy forward.

Yet one of the side-effects of this function is that when looking at data historically, it is once again the top decile, or the "Upper" Class the benefitted consistently over the the past 15 years, to the detriment of both the low-income and the middle-classes, which represent 90% of the population.

It is probable that the dramatic increase in savings as disclosed previously, is an indication that at long last the richest 10% of America may be finally feeling the sting of a collapsing economy. Yet estimates demonstrate that even though on an absolute basis the wealthy are losing overall consumption power, the relative impact has hit the lower and middle classes the strongest yet again.

The main reason for this disproportionate loss of wealth has to do with the asset portfolio of the various consumer strata. A sobering observation is that while 90% of the population holds 50% or more of its assets in residential real estate, the Upper Class only has 25% of its assets in housing, holding the bulk of its assets in financial instruments and other business equity. This leads to two conclusions: while average house prices are still dropping countrywide, with some regions like the northeast, and the NY metro area in particular, still looking at roughly 40% in home net worth losses, 90% of the population will be feeling the impact of an economy still gripped in a recession for a long time due to the bulk of its assets deflating. The other observation is that only 10% of the population has truly benefited from the 50% market rise from the market's lows: those better known as the Upper class.

And to add insult to injury, the segment of housing that has been impacted most adversely in the current downturn, is lower and middle-priced housing: that traditionally occupied by the lower and middle classes. The double whammy joke of holding a greater proportion of net wealth in disproportionately more deflating assets is likely not lost on the lower and middle classes.

The next consumer shock

As this post has demonstrated, so far the lower and middle classes have borne the brunt of the recession. Is it safe to say that the wealthy have managed to game the system yet again and avoided a significant loss of wealth, while maintaining sufficient access to credit? If in fact that is the case, a case could be made for a consumer lead-recovery, granted one that is massively skewed to the 10% of the population which consumes 42% in the US. Yet, in doing all it can to avoid an economic collapse, the administration may have planted the seeds of its own destruction.

In order to finance the burgeoning budget deficit, Obama and his advisors will inevitably be forced to raise taxes, either across the board (contrary to Obama's campaign promises but in line with recent disclosures by the White House), or progressively. The latter is the most worrying, as it seems inevitable that be it to help finance the budget deficit or Obama's healthcare reform action, it is precisely the topmost wealthy decile will be the portion of population impacted the most, and one can argue, that one that has the highest marginal power to determine consumption. And as the consumpion function above indicates, a progressive increase in tax rates, effectively reducing disposable (or after tax) income for the wealthiest will undo virtually all the benefits from both an increase in the stock market, as well as the unprecedented purchasing of MBS and agencies by the Fed in order to prevent a collapse in housing prices across the board.

While for the time being, the administration may have prevented a slide into a depression, the biggest swing factor - the consumer, and more specifically the 10% that comprise the richest stratum thereof - is very weary, and for the time being the Upper class which seems to be the only fragment of US consumption that is propping up the economy, is likely to retrench very soon, absent a dramatic change in stance by the administration. Yet with a budget deficit spiraling out of control, and a policy that for the time being has advocated softening the blow now, at the expense of deterioration in the future, there is no reason to believe that President Obama will approach this problem effectively, and will likely continue relying on government spending to prop up GDP as long as possible, until eventually the key component of the real driver for the US Economy, the "consumer" finally lets go, and the economy spirals into its preordained and inevitable next crisis.



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Sat, 08/15/2009 - 19:34 | 37917 Cheeky Bastard
Cheeky Bastard's picture

fantastic paper; but the most staggering data point that i have found in it is the gap between the 10% of the richest and the rest of the country; silly me( being naive), and i thought it was something like 5x, 5.5x, but not 8x. great job TD.

Sat, 08/15/2009 - 20:48 | 37949 Cheeky Bastard
Cheeky Bastard's picture

yes, but trillions are the new billions so its all good ...

Sat, 08/15/2009 - 20:53 | 37953 Cheeky Bastard
Cheeky Bastard's picture

its 2:53 am here, but i woke up like two hrs ago and had 3 red bulls and a coffee so I'm all good. reading some news till the dawn breaks, and then of to scuba diving and catching some fish.

Sat, 08/15/2009 - 23:53 | 38047 Anonymous
Anonymous's picture

oh dear...seeds of class warfare

Sun, 08/16/2009 - 02:55 | 38098 Hephasteus
Hephasteus's picture

Class warfare always exists. A person kept down through weapons or criticism or a person inflated through distortion or self agrandizing or self jusitification. The war is always being fought. It's only peaceful when one party isn't fighting back at that particular moment because the rich have a bullcrap that works.

Sun, 08/16/2009 - 09:59 | 38140 Anonymous
Anonymous's picture

i think it is big mistake to get caught up in anything like class warfare and racial warfare etc. if we do this, then we fall into the trap that is set. just remember. keep your eyes on the prize. just because someone is wealthy does not make them my enemy. just because someone is racially different does not make them my enemy. remember, enemies are made for you to fight. and while you are fighting these manufactured ememies, the real problem goes unsolved.

Mon, 08/17/2009 - 12:54 | 38842 Bob
Bob's picture

Perhaps the comaprison between racial and class "warfare" is not appropriate in this context.  I'm not going to bother arguing this one, but it is not difficult to oppose the gaming of the system that got us where they and we are today--distinctly different places--with us paying the bills for their sociopathic insanity. 

Sun, 08/16/2009 - 08:31 | 38126 I need more cowbell
I need more cowbell's picture

Look, we live in a world that has money and that money needs to be plundered by men with super-computers. Who's gonna do it? You, Cheeky? You, Andy? GS has a greater responsibility than you can possibly fathom. You weep for Lehman and Bear Stearns and curse Paulson, Ben, and TurboTax Timmie; you have that luxury. You have the luxury of not knowing what I know: that Lehman and BS's deaths, while tragic, probably saved Goldman Sucks @ss and that it's existence, while grotesque and incomprehensible to you, defrauds the US taxpayer of trillions- wait, wait, I mean saves lives, or some such shit. You don't want the truth because deep down in places you don't talk about at parties you want me HFT-ing the market, you need me on providing liquidity . We use words like CDS', toxic assets, cronyism. We use them as the backbone of a life trying to defend our money, that we stole from you. You use them as a punchline. I have neither the time nor the inclination to explain myself to a anonymous poster who rises and sleeps under the blanket of the very liquidity I provide and then questions the manner in which I provide it. I would rather you just said "thank you," , short IYR, get squeezed, and went on your way. Otherwise, I suggest that you pick up the phone, and just buy some GS stock- better then government cheese. Either way, I don't give a dam what you think you are entitled to.

Sun, 08/16/2009 - 08:35 | 38128 Cheeky Bastard
Cheeky Bastard's picture

hope that's sarcasm

Sun, 08/16/2009 - 11:48 | 38162 Cheeky Bastard
Cheeky Bastard's picture

lol ... Don't underestimate me Andy; i thought the above false-rant seemed familiar to me; but due to the fact that my insomnia is getting worse by the day, i could not put my finger to it; oh and BTW; one good goddamn movie; oh and did you find what you were looking for in those SC stocks

Sun, 08/16/2009 - 12:08 | 38170 Cheeky Bastard
Cheeky Bastard's picture

LOL, your " quest " reminds of Jason and the Argonauts. All i can say is; good luck friend.

oh, and i have an off-topic question for you. What is your take on the concept of PITCH; you know elevator pitch etc. I ask you this because i was just watching a vid of some VC douchebag, and find the whole concept of " pitching "  utterly retarded, and maybe one of the main reasons why VCs lose money like crazy.

Sun, 08/16/2009 - 12:35 | 38185 Cheeky Bastard
Cheeky Bastard's picture

so basically they are trying to hit a switch in a dark room, without even knowing if there is a switch in it, and is there even an electrical grid in the neighbourhood. and they are trying just because a blind dude pitched them the possibility that the switch MIGHT be there.

Sun, 08/16/2009 - 13:22 | 38227 Cheeky Bastard
Cheeky Bastard's picture

good call on MF. but the locations are to exotic to me. 

Sun, 08/16/2009 - 08:57 | 38130 Sqworl
Sqworl's picture

GS is government Cheese!!

Sun, 08/16/2009 - 10:10 | 38142 luckyky
luckyky's picture

Nice rant. So true if your speaking to the sheeple.

But there are people trying to hold on to assets who understand that
"rising and sleeping under the blanket of liquidity" (provided by GS and the Gov.)is a bargain with the devil and believe that "blanket" must be removed at all costs. If not, eventually 95 out of 100 citizens will own nothing.

So "thank you" for nothing.

Sun, 08/16/2009 - 10:47 | 38147 I need more cowbell
I need more cowbell's picture

Geez, don't you people watch movies? How can anyone think I was promoting Goldman Sucks ( as if that name wouldn't be enough ).


Sun, 08/16/2009 - 10:57 | 38148 Anonymous
Anonymous's picture

A Few Good Men

Well done. I liked it.

Sun, 08/16/2009 - 11:46 | 38160 MinnesotaNice
MinnesotaNice's picture

I had to read it three times just to make sure it was sarcasm... it was good...

Sun, 08/16/2009 - 12:00 | 38168 Anonymous
Anonymous's picture

Don't get flustered, INMC. The little people -- they can't handle the truth.

Mon, 08/17/2009 - 11:53 | 38361 mossberg (not verified)
Sun, 08/16/2009 - 12:36 | 38189 chumbawamba
chumbawamba's picture

You've just provided a simple demonstration as to why this country is so fucked.  Critical thinking skills apparently became redundant in the 1980s.  Either that or the coke binge never ended.

I am Chumbawamba.

Sun, 08/16/2009 - 13:18 | 38220 Bam_Man
Bam_Man's picture

I believe you are plagiarizing Oliver Stone here. Specifically his screenplay for the movie "Wall Street".

Kudos of course to the original author. Nicely written stuff. His best effort since "Scarface" four years earlier.

Sun, 08/16/2009 - 16:49 | 38286 Hephasteus
Hephasteus's picture

It's always funny how the entitled like to project the entitlement sermon on everyone. The entitlement concept simply doesn't seem to want to universalize. it want's to remain in so few hands.

I guess it's just better to let things go to the extremes. Till they unleash as primal forces of nature. Uncoppable, unstoppable. Hard to ignore no matter how callous you try to make yourself. Don't play with sympathy. It doesn't work like you think it does.


Sun, 08/16/2009 - 16:57 | 38293 Anonymous
Anonymous's picture

I want the truth...


Nice movie adaption btw...

Sun, 08/16/2009 - 22:14 | 38421 Anonymous
Anonymous's picture


Mon, 08/17/2009 - 06:44 | 38540 jester
jester's picture

Few Good Men reference!

+13 trillion

Wed, 09/30/2009 - 08:08 | 83519 Anonymous
Anonymous's picture

:^) When the aliens from other planets pick up our signals and start monitoring our planet, they are going to think that the dominant, intelligent life form here is banks. :^)

Sat, 08/15/2009 - 19:40 | 37919 Anonymous
Anonymous's picture

Oil at $70.00 a barrel is also a factor for many consumers.

Sat, 08/15/2009 - 19:42 | 37921 NoBull1994
NoBull1994's picture

Tyler - generally a good article.  I have to dispute the notion that the lowest 20% income bracket has an average net worth of >$100,000 though.  There is absolutely no way that is correct.  It is probably fairer to guess that the bottom 40% of Americans have zero or negative net worth.  This fact, however, doesn't prevent them from shopping at Best Buy or Abercrombie, apparently.

Sat, 08/15/2009 - 21:17 | 37963 . . .
. . .'s picture

McKinsey may be right about the average net worth in the bottom 20% and 40%.  But that's a totally irrelevant statistic, because you have some super-rich people that in any one year might be in a low income bracket due to big investment losses.

McKinsey should have done their charts showing median wealth in the bottom 20% and 40%.  For example, in 2004 and 2007, Fed statistics showed the bottom 40% by income as having a median net worth of about $50,000.  Also, the bottom 40% by wealth has a negligible median net worth of less than $20,000.  Check pages 13 and 25 of this Fed presentation:


People ought to be careful valuing companies that depend on the mass affluent for consumption.  Congress is likely to end up doubling taxes for everyone making over $100,000.  That'll really cut down the cash households with incomes of $100,000 to $250,000 have for luxury spending.  Obama might not want to raises taxes on the people from $100,000 to $250,000, but the government's debt and contingent obligations for medicaire and social security, plus whatever entitlements Obama and Congress add for medicare or whatever, are so big Congress and Obama will have no choice.  Conversely, it may mean transfer payments to people making less than $100,000 and/or protectionist rules helping their job prospects, which may help consumer companies catering to folks in lower income brackets.

Sun, 08/16/2009 - 07:40 | 38115 OrganicGeorge
OrganicGeorge's picture

A few credit cards, a car loan, and a mortgage.

Throw in borrowed money for for a college education and voila you have subsantain debt for the bottom 20%.

Please remember everyone on this blog has investment money, most people live paycheck to paycheck.



Mon, 08/17/2009 - 12:51 | 38856 Bob
Bob's picture

Actually, don't see how anybody in the bottom quintile could have either positive net worth or a mortgage.  Few of their kids go to college, either.  You seem to be describing the 2nd quintile, although your reprimand is right on. 

Sun, 08/16/2009 - 08:03 | 38120 Ned Zeppelin
Ned Zeppelin's picture

Well said about "net worth" and the bottom half - the only net worth they had was from escalating home vlaues.  Take that out of the equation and the only thing left is relentless, non-deflating debt. I think the numbers regarding "average" net worth in "low" and "middle" are way overstated.  There are probably a couple of 98%ers who are screwing up the curve for the rest of the class. Take them out, and the number is ZERO or below - that, I am certain, is much closer to reality.

Sun, 08/16/2009 - 13:21 | 38225 Bam_Man
Bam_Man's picture

There are a lot of low-income retirees in the bottom 20% who have considerable net worth.

Sat, 08/15/2009 - 19:43 | 37922 Anonymous
Anonymous's picture

I echo my boy CB's kudos on a very good review of the consumer. My only small addition to the discussion is to point out that WMT's comp store sales in the quarter negative for the US stores. The dollar stores are posting positive comps.

Yep, it is possible for the US consumer to trade down from WMT.

For those readers interested in some corroborating data, I would encourage them to look at the US Food Stamp program. Over 10% of the country is on Food Stamps. That ties to TD's observations here. The rules for this program are much more stringent than prior iterations. You basically have to be broke and cannot even own a car worth over $4500. Unless it is your home.

'Nuff Said.

Sat, 08/15/2009 - 20:05 | 37934 Sqworl
Sqworl's picture

Here is proof of the mentality of today's consumers!

Sat, 08/15/2009 - 21:30 | 37972 Big Al
Big Al's picture

Funny as hell  But I think it is supposed to be a joke.  Sort of like the skit Dave Chappell did (in whiteface) about what whould happen if blacks received reparations for slavery.

Sat, 08/15/2009 - 23:00 | 38018 Sqworl
Sqworl's picture

These are the people, with iPhones, Flat screen TV's in everyroom and SUV's and unemployed!!!

He made promises of change.  Banana Republic and the inmates are running amuck.  One gigantic Scam on the american people.  Allowing the Banksters to continue to pillage and rape our country.

Sat, 08/15/2009 - 19:43 | 37923 Hephasteus
Hephasteus's picture

Now if they can just keep the shorts out of the bank stocks and continue to feed them fresh new common stock investors who subsequently get wiped out or diluted to nothing for 4 or 5 years without anyone figuring it out then this will be solved.

Sat, 08/15/2009 - 22:03 | 37987 Missing_Link
Missing_Link's picture

Naah, they'll let them into the small bank stocks, just not the big ones.  To help JPM, Citi, Goldman, BofA, Wells Fargo, etc. eat all the rest.

Sat, 08/15/2009 - 19:52 | 37924 lizzy36
lizzy36's picture

TD, excellent review of the U.S consumer.

Question: What percentage does the U.S consumer make up of world GDP?

Sat, 08/15/2009 - 19:59 | 37929 Pizza Delivery Man
Pizza Delivery Man's picture

Everthing you need about your question.

Sat, 08/15/2009 - 20:02 | 37930 Cheeky Bastard
Cheeky Bastard's picture

19.87% per 08 world gdp and percentage of consumer spending in the overall 08 us gdp

Sat, 08/15/2009 - 20:02 | 37932 lizzy36
lizzy36's picture

CB, thank you!

Sun, 08/16/2009 - 01:33 | 38085 lizzy36
lizzy36's picture

I don't buy the Chinese consumer consumption story.  It takes $5000 (usd) or more per capita income in China to have meaningful discretionary spending. About 110 million (i think this number is generous) Chinese or 8% of their total population fit this category. In the U.S it takes $26,000 or more to have discretionary buying power.  About 260 million Americans or 80% of the population fit (or used to fit) into this category. 

As for Jim Glassman, all i can say is the only way the major financial institutions business plans work is in a bull market. In the absence of a true bull, one is fabricated through the miracle of economic methodology designed to obfuscate reality. I call it the conspiracy of optimism.

Sun, 08/16/2009 - 02:09 | 38089 lizzy36
lizzy36's picture

Dude that had to leave MS after making unflattering remarks about Singapore (i think) in am email after an IMF meeting?

Btw, we are happy to have Rosie back up here after you yanks decided he was no longer worthy.

Sun, 08/16/2009 - 02:28 | 38094 lizzy36
lizzy36's picture

Emphatic about not being being included under the yankee banner?

I can respect (and understand) that.


Sun, 08/16/2009 - 11:50 | 38163 Cheeky Bastard
Cheeky Bastard's picture

non-Yanks of ZH, UNITE !!!!1 ( kidding )

Sun, 08/16/2009 - 02:17 | 38092 lizzy36
lizzy36's picture

I picked up the phrase "conspiracy of optimism" from the former strategy team @ Société Générale of James Montier and Edward Alberts.

Sun, 08/16/2009 - 07:57 | 38119 Ned Zeppelin
Ned Zeppelin's picture

And the Chinese consumer propping up the global economy does not do the US a bit of good, does it? I mean, what new US "living wage" manufacturing jobs are created so that China consumers can purchase our [fill in the blank, PLEASE]? If anything, given the 23% drop in July of Chinese exports (their numbers, so you know that's a low ball number), I think the evidence is clear that we are not holding up our end of the "deal", i.e., the symbiotic relationship whereby China has provided purchase money financing to the US consumer.  So, the lending gets downsized, and they have to figure out how to make sure their UST portfolio doesn't get hammered in the process.

Are the Chinese holdings of USTs enough to blow out the dollar? I was pondering the issue of "security" for the debt the Chinese hold. If you don't hold collateral for a debt, how else can you secure it? Well, in loan shark land, where there are no UCC filings either, your knee caps and the continued utility thereof function very effectively as collateral.  Think about the Chinese collateral - what is it, and how do you collect?


Sun, 08/16/2009 - 09:18 | 38133 Sqworl
Sqworl's picture

We must keep in mind that the Chinese are degenerate Gambler's...The Emperor generation is about status and status to them is anything imported...Not Made in China!

Sat, 08/15/2009 - 19:54 | 37927 Anonymous
Anonymous's picture

People fealt duped after in 2001/2002 when they were told by their "leaders" (bush, greenspan,etc) to spend, spend, spend. "Go out on shop" was the mantra after the last recession and 9/11. So ... that meant no one saved, people went into massive debt, and them boom. People are now losing jobs and only have junk from China to show for it. They have no savings and retirement accounts/home equity are in the dumps - at a time when they need money the most! It's going to take an awful lot for the consumer to once again "spend, spend, spend" - even people with money.

Sat, 08/15/2009 - 20:21 | 37942 Anonymous
Anonymous's picture

I'm a geezer (57). Lived through the 1970's bear. Conspicuous consumption was considered "un-cool". People drove old cars. People shopped at thrift stores. People bartered for labor and goods. A simpler and more relaxed life, in general. Americans are nuts in many respects, but we excel in our ability to change/ adapt. So we'll probably move into and then out of the downturn more easily than the rest of the world. And have more fun doing it.

Sat, 08/15/2009 - 22:25 | 38001 Anonymous
Anonymous's picture

does anyone remember those yellow and black
labeled generics at kroger and elewhere?....

i remember when the reagan boom began and people
dropped those like the plague although they had
at one point market share in the mid 20s....

Sat, 08/15/2009 - 22:41 | 38008 Anonymous
Anonymous's picture

Yeah. For a joke one year, we had a generic party. Yellow and black brand beer, yellow and black brand chips, yellow and black brand cups... (57)

Sat, 08/15/2009 - 23:41 | 38038 Sqworl
Sqworl's picture

that's funny....what's not funny is bailing out ppl who have defaulted on all their credit cards!

Those of us who were responsible with credit are paying the price, most credit has been recinded.  I had a $100K credit from BofA.  I was recently informed that it was reduced to $25K, when I inquired as to why?  They said I did not use it!!!  Correlation at work!  Fuckers!

Sun, 08/16/2009 - 04:47 | 38108 i.knoknot
i.knoknot's picture

we found a pretty good beer wrapped in white and black. won the dormitory brown-bag taste test... cheap was pretty important back then...

Sun, 08/16/2009 - 13:33 | 38235 Bam_Man
Bam_Man's picture

That reminds me of Carling Black Label. We were broke enough in college to try it once.

Sure it was cheap, but tasted like hair tonic.

Sat, 08/15/2009 - 19:58 | 37928 Anonymous
Anonymous's picture

Great read. Just wanted to see if I could answer the math question.

Sat, 08/15/2009 - 20:04 | 37933 Anonymous
Anonymous's picture

So, when will the next crisis begin? This year?

Sat, 08/15/2009 - 21:43 | 37977 Anonymous
Anonymous's picture

CB I posted in an earlier thread -- your avitar -- it seems to be creating quite a bit of contoversy

(you're not by chance a Bob Chapman aficionado are you?)

Sat, 08/15/2009 - 23:28 | 38033 MinnesotaNice
MinnesotaNice's picture

Sad commentary on society...

Sun, 08/16/2009 - 08:26 | 38125 Anonymous
Anonymous's picture

images of Cheeky Bastard across the nation LOL

Sat, 08/15/2009 - 23:03 | 38020 Sqworl
Sqworl's picture


Sun, 08/16/2009 - 00:40 | 38064 Anonymous
Anonymous's picture

Obviously, the antique bird feature stinks to the high heaven and down deep sea. Be aware. Don't get caught by Fish, especially Jelly Fish.

Sat, 08/15/2009 - 20:11 | 37937 Anonymous
Anonymous's picture

Excellent. Your class focus is much needed.

However, rather than tracing the credit crisis back to Greenspan, best to go back further.

The credit/debt crisis can be traced by to Volcker and Reagan era - during which interest rates increased dramatically to fend off inflation, along with the ongoing (and global) privatization and deregulation - the effect of which was to drive down wages. Household incomes have never caught up since, remaining stagnant. To substitute for stagnant US earned income, the financial system of debt creation began earnestly. Debt substituted for income.

Furthermore, as you indicate, the real problem, beyond US domestic interest rates, is of a global nature. In essence, the problem of over consumption based on debt for US workers (a word you ironically never apply), is the flip side of overproduction in the East. Over capacity in the East and debt driven consumption in the US functioned in such a manner that the credit/debt was funded by the structural relationship between producing and consuming, an importance which far exceeds that of Greenspan's rate cuts.

One aspect of the credit crisis that has largely gone unseen, is that said crisis is actually an outgrowth of a much larger structural and 'real' economic crisis. To quote from a figure of long ago:

"Speculation regularly occurs in periods when overproduction is already in full swing. It provides overproduction with temporary market outlets, while for this very reason precipitating the outbreak of the crisis and increasing its force. The crisis itself first breaks out in the area of speculation; only later does it hit production. What appears to the superficial observer to be the cause of the crisis is not overproduction but excess speculation, but this is itself only a symptom of overproduction. The subsequent disruption of production does not appear as a consequence of its own previous exuberance but merely as a setback caused by the collapse of speculation." K. Marx - 1850

To fully understand the US crisis one has to put it in a global context. Both China and the US are desperately attempting to revive global trade based on the conditions that proceeded the crisis. Both recognize that failure to revive the conditions of the structural imbalances, leads to further crisis, one that grips the global economy in a way that far exceeds just its financial institutions and actors.

To revive the global imbalances is at best a delaying tactic. Strategically it will only and eventually make matters much worse.

Sat, 08/15/2009 - 21:02 | 37955 Anonymous
Anonymous's picture

Marx pontificating on life is now complete...LOL.

Surely a Keynesian treatise on crony capitalism will follow ;-)

Perhaps we will devolve into statism in the higher social orders...leaving the crumbs to be fought over by the lower echelon in our has always been thus as crabs in a bucket pull the crabs about to escape back inside...but this sounds "fishy" eh???...greed has many fathers...poverty is an orphan.

I'll report myself to .gov immediately.

Sat, 08/15/2009 - 22:17 | 37995 Anonymous
Anonymous's picture

Anon 37955 subscribes to veritas est adaequatio rei et intellectus and therefore can dismiss Marx and Keynes.

'Read the big four to know capital’s fate'

Sat, 08/15/2009 - 23:01 | 38019 Anonymous
Anonymous's picture

You are correct...of your four I subscribe to only two...that which makes no "cents" is to be discarded.

Where is the Keynesian multiplier when the taxpayer receives no benefit only the debt from a bankrupt monetary policy???

Where is the social equality of Marx when one is enslaved to the state by force???

When flipping a two headed coin I prefer to use my own coin...LOL.


Sat, 08/15/2009 - 23:21 | 38026 Anonymous
Anonymous's picture

All of you anons are backwardated! The world is messy and uncertain, and Smith was just a sentimental moralist.

Those are my principles, and if you don't like them... well, I have others.

Tue, 08/18/2009 - 20:24 | 40514 Anonymous
Anonymous's picture

They know EXACTLY what they are doing.
Only problem - the Vultures got too greedy for all - or perhaps not. Less money, stuck in a house you can't sell, no job, no insurance, sick from crap food and water

"The Trilateral Commission is intended to be the vehicle for multinational consolidation of the commercial and banking interests by seizing control of the political government of the United States.

The Trilateral Commission represents a skillful, coordinated effort to seize control and consolidate the four centers of power political, monetary, intellectual and ecclesiastical.

What the Trilateral Commission intends is to create a worldwide economic power superior to the political governments of the nationstates involved.

As managers and creators of the system, they will rule the future."

- U.S. Senator and 1964 Republican candidate for President Barry Goldwater in his l964 book: With No Apologies (Morrow, 1979), page 280.

Sat, 08/15/2009 - 21:05 | 37956 Anonymous
Anonymous's picture

thanks for posting this....i have asked several times in this forum and elsewhere how the depression has played out across income and wealth deciles and feel that i got served on a silver platter...the only missing piece is where unemployment is hitting on a income percentile basis although it was vaguely implied by the data above....

this type of analysis is also where trickle down economics comes from and is valid contrary to the dufus arguments against it....

the declining federal revenues will continue unabated in the presence of a tax increase....the laffer curve is valid - again contrary to knee-jerk nonsensical counter-arguments.....marginal tax rates are profoundly important on economic activity and it appears that obama will raise them contrary to his claims...if he does and anyone is surprised then i have some dunce caps to pass out...

job outsourcing caused by massive decapitalization is the primary cause of lost income....the government's accumulation of debt when marginal productivity of debt is negative, and pre-emption of capital for jobs creation will make this depression the grand-daddy of all depressions in the usa.....the problems of today have been in long evidence since our decline began in the early 1970s....

thus the triple whammay of higher taxes, debt exhaustion, and structural declining incomes will make recovery case scenario is for higher lows....

Sun, 08/16/2009 - 00:10 | 38054 defender
defender's picture

I can tell you how it worked out in central Nebraska. 
The first people that got laid off in the corporations were the lowest paid (temps).
Next went the "non essential" floor workers, again the lowest paid group.
After that, office workers finally felt the sting as the less connected and lowest paid got the boot, along with a few of the production floor supervisors.
At least this is what happened at the two places that I was laid off from.  I am fairly sure that upper management still got their bonuses, for successful cost cutting.

Sat, 08/15/2009 - 21:07 | 37957 Anonymous
Anonymous's picture

What happens when (if) FASB 148 brings off balance sheet unfunded pension plans and other "special vehicles" onto balance sheets? Will consumers play along when they have to bail out defined pension recipients - and the tbtf banks again?

Sat, 08/15/2009 - 21:13 | 37965 Anonymous
Anonymous's picture

and then add to that the effect of having to
honestly value the junk....those two moves will
kill off lots of banks - as indeed it should...

the good news is that after the trimming, pruning,
and gutting, we will clear the way for new solid
growth if the crooks and quacks who got us here
not allowed to work in the financial field again...
they should be flipping hamburgers at mcdonald's..
lloyd - chief cook; jamie - chief fry cook; ben -
swing shift cashier....

lots of pension plans will go belly up....would
love to see an analysis of pension plan solvency
and wholeness.

Sat, 08/15/2009 - 22:24 | 38000 MinnesotaNice
MinnesotaNice's picture

Denninger had a interesting post today titled USPS Threatens Health Pension Default... I guess the consumers can start with bailing out the USPS:

Sat, 08/15/2009 - 21:10 | 37959 maximus
maximus's picture

The greatest depression will be over when the dollar store retail chain gets inserted in the Dow and WalMart gets yanked out...

Sat, 08/15/2009 - 21:26 | 37970 Anonymous
Anonymous's picture

Now tha is a great tag line! Funny as hell, but true!!!

Sat, 08/15/2009 - 22:31 | 38004 MinnesotaNice
MinnesotaNice's picture

That's a perfect thought to end the evening... if that ever happens I wonder what else might be included in the Dow 30?  From the conclusions drawn in  TD's research article both Tiffany's and the Dollar Store could be part of the Dow 30 at the same time due to our eroding middle class, and thriving lower and upper classes.

Sat, 08/15/2009 - 23:51 | 38044 Sqworl
Sqworl's picture

LOL.  I bought one share of Citi at $1.00..It cost me $7 in fee's.  Fuck you Satan Weill and your crack head son!

Sat, 08/15/2009 - 23:56 | 38048 Cheeky Bastard
Cheeky Bastard's picture


Sat, 08/15/2009 - 21:18 | 37967 Anonymous
Anonymous's picture

So, the top 10% of earners consume 42% of GDP. I'm having a hard time wrapping my brain around that. Such a small percentage consuming such an enourmous amount. This must mean they spend in really big chunks, rather than consuming volumes. What industries suffer if they cut back?

Sat, 08/15/2009 - 22:11 | 37992 Anonymous
Anonymous's picture

boats, luxery vehicles, travel, hospitality,
collectibles, real estate, high end electronics,
high end jewelry, equities, et. al.

Sat, 08/15/2009 - 23:10 | 38022 Sqworl
Sqworl's picture

The only thing that affected the 10% is new rule of discarding the 20% and keeping bling out of the media.

Also, paying less and making their servants work more.

What is the difference between a Bankster and a Narco?

Sun, 08/16/2009 - 00:45 | 38066 Anonymous
Anonymous's picture

How much a gulf jet cost? And how much a 200 foot yacht cost? And a 5 carat diamond? A $4000 wine in a basement of a restaurant near Wall Street? A 20,000 suit? The art market with a painting going any price a bidder wants to bid?

Sun, 08/16/2009 - 09:01 | 38131 Sqworl
Sqworl's picture

It depends who your buying from? Fire Sales everywhere!! Unless your congress, then everything cost double!

Sat, 08/15/2009 - 21:21 | 37968 Anonymous
Anonymous's picture

check out what the great Prechter has to say (a few minutes into the video

Mon, 08/17/2009 - 11:53 | 38358 mossberg (not verified)
mossberg's picture

In the end this cannot work, so the savings will have to be eroded by inflation in the time going forward.

We just

good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions

Sat, 08/15/2009 - 21:30 | 37969 . . .
. . .'s picture

If anyone cares, I think the below slide presentation by the Dean Baker of CEPR does a much better job analyzing the impact of the crisis on net worth of baby boomers.  It analyzes income and wealth by percentiles, and doesn't have misleading graphs using averages.

Baker's presentation drives home how little savings most boomers have, and how they will be forced to ramp up saving, regardless of how much Obama, Congress, and the Fed want them to boost consumption.  And also how very dependent most boomers will be on medicare and social security, and how much they will fight cuts to these programs.  (Of course, younger folks outnumber boomers soon, and may push back against doubling their taxes to support boomers.)

My only criticism of Baker's presentation is that he didn't extend it to other age groups.  Boomers are only one generation; the country has a number of them.

Sat, 08/15/2009 - 21:37 | 37976 Anonymous
Anonymous's picture

Speaking as a member of the late Gen X / early Gen Y generation, I've saved roughly 12-20% of my household income over the past six years after I graduated college. I didn't see the market crisis coming - it blindsided me, ... the good news is it got me checking out macro economics and I'm checking out Technical Analysis right now. I would rather not be blindsided by future bear markets again, if at all possible.

Other members of the early Nintendo generation, at least hte ones I hang out with, are prudent with their money, and most have some savings, and definitely NOT negative savings. This is likely because most Gen Y households are not stable family units yet (many are waiting till the late 20s / early 30s to marry). However, they are keen on spending, just not as much so when they start getting hired again we'll likely see a moderated increaase in spending.

The Nintendo generation is significant because they are the children of the Boomer generation. If they are more moderate in their spending habits, then we will likely not see a return to net negative savings, and thus avoiding, hopefully, a credit bubble. And hopefully they don't invest a ton of money into the multiple piercings they have on average (myself notwithstanding).

Unfortunately this may all be driven into retirement savings, since we'll never see a dime of social security or pensions.

Many many Gen X'ers I know have practically zero savings. They echoed the same mistakes as the Boomers.

Sat, 08/15/2009 - 22:08 | 37991 Anonymous
Anonymous's picture

Dream on... every generation has it's bubble. When the children of the boomer hit their peak earning/investing age (40-50), another raging bull and crash, then their children will do it, and their children will do it... (57)

Sat, 08/15/2009 - 22:21 | 37998 Anonymous
Anonymous's picture

1930... 1960... 1990... 2030... 2060...(+/- 10 years)

Sun, 08/16/2009 - 00:10 | 38055 Anonymous
Anonymous's picture

that is, if there is an economic system in place on which to blow a bubble once the boomers suck current resources dry.

economies built on tattoo parlors, facebook, and video games don't go very far. i hope some of the gen y generation are hip to farming.

Sun, 08/16/2009 - 04:10 | 38107 misinheritance
misinheritance's picture

Hmmm... I don't think Gen Y is hip to games, yes, but farming, no.

Sun, 08/16/2009 - 22:44 | 38437 Anonymous
Anonymous's picture

Brilliant! We should just play videogames all day and let robots do all the work for us.

Sun, 08/16/2009 - 07:03 | 38113 Anonymous
Anonymous's picture

Hey Kool-Aid!! (commercial from my formative years). You drinkin' the stuff? I might agree with *some* of the conclusions that CEPR reaches, but that org in general is a bunch of far-left Chavez fluffers whose policies would bring violence to the US if enacted in full.

Sat, 08/15/2009 - 21:32 | 37973 RobotTrader
RobotTrader's picture

My bellweathers of conspicuous consumption.

When the consumer stops, these will fail first:


Sat, 08/15/2009 - 22:06 | 37982 . . .
. . .'s picture

Yup, yuppies in the "mass affluent" of $100,000 to $250,000 income will be switching from SBUX to MCD and COH to TGT.  Due to savings falling, and eventual fiscal crisis that'll push Congress and Obama to basically double taxes for everyone making over $100,000, so maybe everything over that taxed at 54% to 70%, plus a health care surtax (or back-door surtax through the insurance companies hiking premiums to recoup the Kerry excise tax on insurers).

Wait for switching from Victoria's Secret to Hane's Hipster panties.  And no more purchases of Coach shoes and purses every couple months.

Sun, 08/16/2009 - 00:15 | 38056 Anonymous
Anonymous's picture

this won't happen because it won't work. there may not be too many productive people making over 200k (these folks are mostly useless politicos save the doctors), but there are plenty of productive households making over 100k. ratchet up the taxes and watch the marginal productivity of these folks plummet.

never to worry... they are just the people designing your roads and bridges, running your hospitals, keeping your business systems (computers) running, attending to your illnesses, fixing your pipes, keeping the electricity on, preventing mid-air collisions, running the police force, managing your supply chains, etc, etc, etc.

Sat, 08/15/2009 - 21:33 | 37974 D.O.D.
D.O.D.'s picture

Ok, I promise to read this post in it's's a big post Tyler...


But just an aside, Bloomberg seems to thinks that the return of Mark to Market will be bad for the banks.... geee, ya think...and be sure to check the purty graphic...

Sat, 08/15/2009 - 23:39 | 38036 MinnesotaNice
MinnesotaNice's picture

Won't go into effect until 2011... so the banks can likely continue their fantasy valuations of toxic assets for quite a bit longer.  The FASB can sure make quick changes in practices that benefit the banks (i.e. April '09)... but are really slow to make changes that could harm the banks (i.e. 2011).

Sun, 08/16/2009 - 08:06 | 38121 Ned Zeppelin
Ned Zeppelin's picture

The effective date of 2011 is a joke. It is a way of seeming reasonable now by giving them the ability to say, "but hey, this is only temporary, we'll be back to normal in 2011.  Promise!"

Not a chance. Lies, lies and more lies.

Sun, 08/16/2009 - 09:19 | 38134 AnonymousMonetarist
AnonymousMonetarist's picture

Folks by the time they apply the 'tighter' rules the banks will use this new transparency to write-up assets.

No worries about exasperating cyclicality on the way up don't ya know.

Sat, 08/15/2009 - 21:36 | 37975 ptoemmes
ptoemmes's picture

I know this is a HuffPo link but isn't HuffPo fluff and seems to corroborate some of what TD posted which.


Income inequality in the United States is at an all-time high, surpassing even levels seen during the Great Depression, according to a recently updated paper by University of California, Berkeley Professor Emmanuel Saez. The paper, which covers data through 2007, points to a staggering, unprecedented disparity in American incomes. On his blog, Nobel prize-winning economist and New York Times columnist Paul Krugman called the numbers "truly amazing."

Though income inequality has been growing for some time, the paper paints a stark, disturbing portrait of wealth distribution in America. Saez calculates that in 2007 the top .01 percent of American earners took home 6 percent of total U.S. wages, a figure that has nearly doubled since 2000.


And on a tangential note - again get past the HuffPo link:


WASHINGTON - A deal with Switzerland settling U.S. demands for the names of suspected tax dodgers from a Swiss bank has a lot of wealthy Americans with offshore accounts nervously running to their tax advisers -- and the Internal Revenue Service.

"They are very frightened," said Richard Boggs, chief executive of Nationwide Tax Relief, a Los-Angeles-based tax firm that specializes in clients with tax debts exceeding $100,000. "You have the super rich who are not used to being pushed around and they are finding themselves in unfamiliar territory."







Sat, 08/15/2009 - 21:48 | 37978 Anonymous
Anonymous's picture

posting links from Huffington is tantamount to posting links to Bob Chapman's - please spare us

Sat, 08/15/2009 - 22:02 | 37986 Anonymous
Anonymous's picture

Dude, they might listen to you if you weren't an anon.

Sat, 08/15/2009 - 22:18 | 37996 Anonymous
Anonymous's picture

i would listen whether or not he has some non-sensical
moniker on his posts....

bob chapman offers great synopsis and analysis
of the crisis and differs in no fundamental
respect to zh or denninger or other bear leaning fact chapman references zh occasionally...

huffington post i would avoid like the plague just
as i would uber socialist tax and spend meister

Sun, 08/16/2009 - 00:29 | 38061 Anonymous
Anonymous's picture

Income inequality...there's a huge surprise.

Take a combination of TARP/TBTF institutions that can pay compensation equivalent to the GDP of Mauritius, and toss in a little manual-laborer-with-a-high-school-education-trying-to-compete-with-1.3-billion-Chinese-and-1.1-billion-Indians, and you have a recipe for an income gap so wide even the late Evel Knievel would not dare cross it.

One of these groups is being subsidized by the taxpayer at a huge cost (TARP, ZIRP, TALF, etc.), though probably not too much different than the cost it would take to subsidize the much larger group (via tariffs, trade barriers, etc.). The currently subsidized group, though, is organized and spends a lot on lobbying and in campaign contributions, while the other is generally dispersed and very much in the dark.

Sat, 08/15/2009 - 21:49 | 37979 Xibalba
Xibalba's picture

The problem dates back much further than Reagan...


Sat, 08/15/2009 - 21:51 | 37981 Anonymous
Anonymous's picture

from the article above

""Between 2000 and 2007, US households led a national borrowing binge, nearly doubling their outstanding debt to $13.8 billion."

13.8 billion???? that's chump change - that number cannot be correct

e.g. a fraction of the bonuses paid on the street

Sat, 08/15/2009 - 22:19 | 37997 Anonymous
Anonymous's picture

it was supposed to be trillion.....

Sat, 08/15/2009 - 22:40 | 37993 MinnesotaNice
MinnesotaNice's picture

Very nice article... it is hard to believe this website is still free. 

Money is a promise of valueLending and borrowing are a form of giving and receiving... and as such help to maintain the social bonds by encouraging 'if you help me, I will help you'... a type of social symbiosis.  However, when lending and borrowing are carried to extremes and money becomes questioned as a promise of value, then the entire foundation that our social bonds are built upon becomes very shaky. 

I believe that is what we are feeling right now between China and the United States... and within the borders of our country... lending and borrowing have been taken to such extremes... money is becoming a questionable store of value... and our social bonds are starting to feel a little unstable.  

The unequal distribution of lending and borrowing that can occur between countries... shifts the natural balance from symbiotic to parasitic.  I would suspect China is starting to view the United States a little bit like a parasite and the quicker it can rid itself of us without doing harm to itself it will take that opportunity. 

The unequal distribution of lending and borrowing that has occured within the United States has shifted the natural balance from symbiotic to parasitic.  In this case it is Wall Street/government oligarchy that is now perceived as being parasitic to the greater society... and the social bonds are beginning to feel as if they are starting to break down.  I think we have a sense that if and when we were given the opportunity to rid ourselves of the Wall Street/government oligarchy that we would do so in a heartbeat. 

Sat, 08/15/2009 - 22:57 | 38014 Anonymous
Anonymous's picture

What's the big deal? ZH regurgitated a McKinsey analysis.

Sat, 08/15/2009 - 23:21 | 38027 MinnesotaNice
MinnesotaNice's picture

Well then... let's see what you can regurgitate... and then we can all vote on which is better written and presented for this blog's audience.  From your comment I am not holding out high hopes for you...

Sat, 08/15/2009 - 23:36 | 38034 Cheeky Bastard
Cheeky Bastard's picture

excellent post. When we think money, we should back a few steps and look at the social structure which money bounds together. What is the function of money ? First it would have to represent non-abstract value ( thank you SWRichmond ) and should not reproduce that value by artificial creation or arbitrage. Then it should serve as a bond between various individual entities who operate on the same structural fundamentals ( ie. pursuit of happiness, liberty, the right to express yourself ) in order to facilitate the progression and development of society. It should never be defined as a bond which function is to homogenize different individual qualities under the prevalent ideological view. Money, if not derived from a non-abstract entity can never be a function of progression, but only a tool of political and social unification. Lending and borrowing are also phenomena which behave differently in various societal structures. For example they have no function in a barter system; but have define the system of exchange. In exchangeable system money is only an intermediary for one individual or entity to achieve the goals which it/he has set for himself in coordination with structural fundamentals. But when money starts to behave not like an intermediary between goods and services, and starts to behave like a product of that exchange you have the problems which we encounter today. The sole fundamental of any monetary system should be that the money which circulates in it is not defined as a goal, but as a tool of acquiring good and services in order for an individual and entity to archive their own personal. Also it is inevitable, that, when money starts to be a function of accumulation and not the function of exchange, that the FIAT currency will need to be created to satisfy the social requirements of progress and to keep its social fundamentals safe and strong. Unfortunately, because the nature of FIAT currencies is pure abstraction and exponentiality it is also inevitable that the society which accepts FIAT currencies as a tool for accumulation is bound to collapse. Include in that debt and over-borrowing ( it always happens because of the human psychology and other various anthropological reasons ) and the socio-eschatological picture becomes clear. This is nothing new and it had happened various times in history ( Roman Empire, France, Britain, Italy and Spain in 1720) and it will happen again. It is necessary to look at the present situation from a different angle, not only from an economical one; to get the real state of the matter. 


Sorry for the long post.

Sat, 08/15/2009 - 23:40 | 38037 Anonymous
Anonymous's picture

CB -

Another rockin' post. You can be a little short sometimes (as in dismissive, not stature) but I find that I basically read the ZH story and then go looking for your comments.

Question I have wondered about, though. There was a gold standard in place in many countries between the wars. Yes, Germany got screwed with reparations and that created a lot of structural imbalances. And the US had a gold horde after WW I that allowed for a lot of asset price inflation.

But it seems like a gold standard is no sure path to stability. I hear you on the fiat currency issue, and I really like your explanation of how it came about.

But is a non-fiat standard (gold or whatever) really significantly better?


Sat, 08/15/2009 - 23:51 | 38043 Cheeky Bastard
Cheeky Bastard's picture

thank you


actually, i have no idea; but as i read from history the pattern emerges that the asset back currency is strong as long as a) there is enough gold, silver, oil etc to back the value of the currency against the demand for it b) as long as the population of the country, empire etc is small enough to satisfy the pre-requirements i mentioned under a ) and c) as long as there is moderate growth and not rampant one ( this is the direct consequence when things i mentioned under a and b get either disturbed or outgrow one another ) and d) if there isn't a long leading expansionist war which cripples domestic economy and uses resources to basically support itself. If anything of that 4 things happen FIAT currency is a necessity to insure survival of a structure ( but only in the short term). If that is regulated asset-backed currencies have no problem to insure the progress and stability of the system ( main evidence for that is Norway ).

Sat, 08/15/2009 - 23:48 | 38041 MinnesotaNice
MinnesotaNice's picture

All I can say is wow... thanks for fleshing out my thoughts even further and more eloquently... I have to say that I enjoy the perspectives that you bring from 'looking in' on 'us' from outside the United States. 

Sun, 08/16/2009 - 00:56 | 38071 Sqworl
Sqworl's picture

Great Post!  Reminds of a thread on a blog about Nouveau riche..a guy wrote, that anything after 1300 was nouveau riche to him...a pennyless

Sun, 08/16/2009 - 08:13 | 38123 Ned Zeppelin
Ned Zeppelin's picture

" is also inevitable that the society which accepts FIAT currencies as a tool for accumulation is bound to collapse."

"Whoa."  - Neo


Sun, 08/16/2009 - 17:23 | 38302 Anonymous
Anonymous's picture

Money is debt. It is the indenturing of a fellow human being, who's future earnings are the whole basis for the purported value in the fiat currency.

It may be the best thing we have to accomplish goals, but let's not pretend money and lending and borrowing are the basis of social bonds, honey, sweetness and light.

Sat, 08/15/2009 - 22:14 | 37994 Milton
Milton's picture

So home equity loans and cash-out refinancings were running at about $500 billion per year, which is about 4% of GDP. No more of that going on. Then there's the multiplier effect of that of 500 billion per year stopping, plus 401k values are down so there is less to borrow there too.

Anyone have any numbers on 401k loans?

Sat, 08/15/2009 - 22:22 | 37999 waterdog
waterdog's picture

Let me be the stick up my behind. The paper is well written. It is smoother than most papers written by master degree candidates. However, once again, I have seen these graphs daily for 60 days, I have read about consumer credit in the U.S.A. for 60 days, I am tired of hearing about the period 2000 through 2007. Out of respect for the program, I subject myself to these type of topics to show I care.

If I have to read one more paper on how we got here, I am going to take my herbicide and spray into ever yard on my block the words- please stop.

I would like a paper that provides insight to how the price of gasoline in 2013 will destroy any hope of a real recovery.

But, I want to go on record about this, if ZH is receiving something in value for posting these writings, then I will shut the heck up and continue to show my loyalty to the program.

Sat, 08/15/2009 - 22:30 | 38003 Anonymous
Anonymous's picture

then don't read it....just like i won't read the
paper on gasoline prices....

Sat, 08/15/2009 - 22:41 | 38007 MinnesotaNice
MinnesotaNice's picture

The complexity of how we got here must be understood before we can ever chart a future course.  Or in my case... my psychology has shifted somewhat to "every man for himself, women and children first please".  I feel that I must understand how we arrived here to more nimbly navigate around those less informed, which should then best protect my family through this nightmare we call our economy.  So I soak up a variety different information sources, including TD's articles and thoughts, like a thirsty sponge.

Sun, 08/16/2009 - 00:42 | 38065 Marley
Marley's picture

Well, since you asked, here's my two cents.  For interest read The Fourth Turning, it will resolve your "every man for himself, women and children first please" attitude.  I fear to say that understanding how we got here is irrelavent since those that will benefit won't pay attention to your sage.

Sun, 08/16/2009 - 00:57 | 38073 MinnesotaNice
MinnesotaNice's picture

I actually have read about the concepts contained in the book... and it is intriguing... its concept is that there are cyclical seasons in history... but by knowing this should it not contribute to positioning yourself and your family better that those who choose not to read and understand?  If not and there is no hope then I will have to send the brand new wood-burning fireplace that was just installed last week to give me piece of mind that I have an energy source off-the-grid.  (By the way I just ordered this book off Amazon based on your recommendation... Thanks)

Sun, 08/16/2009 - 07:18 | 38114 Anonymous
Anonymous's picture

You too, eh? Did it qualify for the 30% tax rebate?

Sun, 08/16/2009 - 22:23 | 38431 MinnesotaNice
MinnesotaNice's picture

I didn't know there was a 30% tax rebate... is that a federal tax rebate or a state rebate?

Sun, 08/16/2009 - 09:04 | 38132 Sqworl
Sqworl's picture

Thank you..just downloaded to my KindleDX...

Sun, 08/16/2009 - 11:47 | 38161 Marley
Marley's picture

Yes, you are absolutely right, what am I thinking?  It is probably impossible not to try to position your family for the coming crisis.  Problem I'm having is that my family and friends now think I'm nuts!  (I hope they're right.)  "He who desires but acts not, breeds pestilence."  - William Blake   In this society, we've no social network to catch "those who choose not to read".  In fact, the very individuals clamoring to stop the "socialist" health care program are also the very individuals that will be at your doorstep asking for aid, if they ask, putting your well positioned family in peril.  Check out "Permaculture" by Bill Mollison.  I think this provides a great alternative social strategy for the coming crisis that include low energy intensive farming and community cooperatives.  "New Age Communes" (they're back :)

Sun, 08/16/2009 - 12:55 | 38199 MinnesotaNice
MinnesotaNice's picture

Agreed... and if you survey those individuals who are clamoring to stop the 'socialist' health care programs you will find that they have a high percentage of uninsured and under-insured among them... and they will be the first to expect the state to pony up when their loved one gets in a motorcycle accident and requires millions of dollars of care for the rest his/her life... or their child gets a rare form of cancer and their insurance is inadequate to cover the treatment and the state must step in to absorb the cost.

Sun, 08/16/2009 - 00:56 | 38072 Anonymous
Anonymous's picture

It's pretty clear, to anyone who has given it a moment's thought, how we got here. In point of fact, all roads lead here. Always have, always will. It's coded in the genes, and no amount of ultraviolet radiation or bad chemicals is ever going to knock off the telomeres on the ends of those chromosomes and allow us to get at the source of our inherent faults. We're stuck with them.

We just made the mess a whole lot bigger this time than in the past, so getting out is going to carry a cost I do not even like to think about, but must.

We're in the eye of the storm, so we have a chance---if we are willing to take it---to nail the plywood back on the windows.

Sat, 08/15/2009 - 23:24 | 38030 SWRichmond
SWRichmond's picture

"I would like a paper that provides insight to how the price of gasoline in 2013 will destroy any hope of a real recovery."

During the last Great Depression, one of the U.S. government's responses was to devalue the USD by 70%; does that help?

Sat, 08/15/2009 - 22:32 | 38005 Anonymous
Anonymous's picture

whilst i agree with fundamentals a lot and looking at it, the market mow is not driven by this unfortunatly for me, it is driven by a quick fling and not even a one night stand any longer, that is reduced to fraction of a second premature in and out by hypers

Sat, 08/15/2009 - 22:33 | 38006 Anonymous
Anonymous's picture

looking at the numbers and the percentage of wealth held in "other" financial assets,outside of real estate i.e. stock in their publicly traded company, is it no wonder that insiders are selling their stock at a pace not seen before?

take this a step further how many of the top decile are hurting in their non listed companies i.e. tool and die shops etc.. where they were counting on monetizing their wealth while the boom was to continue

if this economic recovery does not bounce back as the admin wants it to, it would be interesting to cut the numbers in that top decile separating small business owners from those indiviuals who are lucky enough to have their shares listed and able to monetize

Sat, 08/15/2009 - 23:22 | 38011 MinnesotaNice
MinnesotaNice's picture

Your point is very valid and an interesting one.  I own several businesses with other owners... and when this economic crisis was unfolding in 2007-08 I was like an animal sensing an upcoming storm... I knew I needed to exit/monetize the stored value in one of our business... because there would be no other opportunities to due this in the next 10 years.  I pursued this with a vengeance and was successful... however I have stored value in the remaining businesses that I will likely not be able to touch in the next 10 years.  Just like residential real estate is underwater... so are non-publicly traded companies... you may still have a fairly decent balance sheet... but the diminished number of qualified buyers is suppressing the ability to sell and monetize the stored value.

Sun, 08/16/2009 - 11:12 | 38151 poydras
poydras's picture

Yes...The destruction of wealth are the seeds to further economic decline.  This is the beginning, not the end.  Wealth destruction may linger on for over 10 years.

Sat, 08/15/2009 - 22:43 | 38009 waterdog
waterdog's picture

Pardon me wilst I mix the first batch.

Sat, 08/15/2009 - 22:52 | 38012 MinnesotaNice
MinnesotaNice's picture

Waterdog... I know you follow several blogs at once... including a baking blog... did you get confused on which one you were commenting on?  :=)

Sat, 08/15/2009 - 23:12 | 38024 waterdog
waterdog's picture

Yes I do. I do not write well on the fly. I am a terrible speller. So many of my blogs are written in advance so I can insert them when they are relevant.

For ZH, it is impossible to get a window that is neutural to post a relevant blog when, what you are posting is not relevant. You will notice I insert long winded blogs at the beginning of the comments.

So, I have several shortcuts sitting on my desktop that I cut and paste at the proper time to a blog window.

After about six to twelve drinks, I have a tendancy to send the wrong thing to the wrong place.

If ever you see a blog wherein, I point out to a fellow blogger that the sole use of fresh squeezed lemon juice vs. pre-squeezed in anything remotely resembling a desert, is money down the drain,you know I was confused and opened the wrong window.

Sat, 08/15/2009 - 23:24 | 38029 MinnesotaNice
MinnesotaNice's picture

Oh my god... that is the funniest thing I have read tonight... good luck on that batch of whatever you are making... and nice tip with the lemon juice... I will remember that  :-)

Sun, 08/16/2009 - 00:48 | 38069 Marley
Marley's picture

Are vodka lemonaids considered a desert?

Sat, 08/15/2009 - 22:45 | 38010 Anonymous
Anonymous's picture

I am very confused - first by my trusted source for all things financial (CNBC) - and now by your pithy post. All seem to say the "consumer" is the basis for recovery, and yet this is, by induction, a "bottom-up" approach to economic strength - reliance on the riff-raff...
However, we all know that it is the "Top-Down" approach that is the true backbone of the economy, as evidenced by the massive attention (and copious amounts of money) directed at the upper strata. When the top 10% spend that marginal income and buy that extra yacht, the wealth trickles down onto the hordes of the great unwashed. It is this beneficence that will lift us from the abyss.

Please correct your analysis.

Sat, 08/15/2009 - 22:53 | 38013 MinnesotaNice
MinnesotaNice's picture

Very funny... lol

Sun, 08/16/2009 - 01:31 | 38084 whacked
whacked's picture

You are sooo right dearie..


Now please I pay more than the rest and therefore should have access NOW!!!

Sat, 08/15/2009 - 22:58 | 38015 waterdog
waterdog's picture

By the way, I have some flings and one night stands I can lend you. After they get done with you, you will scream every time someone writes a paper about how we got here- because you will no longer care.

I will step down and admit that if you are new here, you have finally come to a place where you can get knowledge and express yourself without any flack.

I am not complaining about the post, I am just fed up to my lumbar reading about why I am where I am.

Be glad you do not live on my block.

Do NOT follow this link or you will be banned from the site!