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Guest Post: The Great Deleveraging Lie
Submitted by Jim Quinn of The Burning Platform
The Great Deleveraging Lie
You can’t open a newspaper or watch a business news network without
seeing or hearing that consumers and businesses have been de-leveraging.
The storyline as portrayed by the mainstream media is that consumers
and corporations have seen the light and are paying off debts and living
within their means. Austerity has broken out across the land. Bloomberg
peddled this line of bull last week:
US Household Debt Shrank 1.5% in the Second Quarter
American households pared
their debts last quarter, closing credit card accounts and taking out
fewer mortgages as unemployment persisted near a 26-year high, a survey
by the Federal Reserve Bank of New York showed.Consumer
indebtedness totaled $11.7 trillion at the end of June, a decline of
1.5 percent from the previous three months and down 6.5 percent from its
peak in the third quarter of 2008, according to the New York Fed’s
first quarterly report on household debt and credit.The
report reinforces forecasts for a slowing economy in the second half of
2010 as consumers hold back on spending and rebuild savings.
One has to wonder whether the
mainstream media and the clueless pundits on CNBC actually believe the
crap they are peddling or whether this is a concerted effort to convince
the masses that they have done enough and should start spending.
Consumer spending as a percentage of GDP is still above 70%. This is
well above the 64% level that was consistent between 1950 and 1980.
Consumer spending was entirely propped up by an ever increasing level of
debt. The American economy will never recover until consumer spending
drops back to the 64% range that indicates a balanced economic system.
For the mathematically challenged on CNBC and in the White House, this
means that consumers need to reduce their spending by an additional $850
billion PER YEAR. Great news for the 1.5 million retailers in America.
Below is a chart that shows total
credit market debt as a % of GDP. This chart captures all of the debt
in the United States carried by households, corporations, and the
government. The data can be found here:
http://www.federalreserve.gov/releases/z1/current/accessible/l1.htm
Total credit market debt peaked
at $52.9 trillion in the 1st quarter of 2009. It is currently at $52.1
trillion. The GREAT DE-LEVERAGING of the United States has chopped our
total debt by 1.5%. Move along. No more to see here. Time to go to the
mall. Can anyone in their right mind look at this chart and think this
financial crisis is over?

During the Great Depression of the 1930′s Total Credit Market Debt as
a % of GDP peaked at 260% of GDP. As of today, it stands at 360% of
GDP. The Federal Government is adding $4 billion per day to the National
Debt. GDP is stagnant and will likely not grow for the next year. The
storyline about corporate America being flush with cash is another lie.
Corporations have ADDED $482 billion of debt since 2007. Corporate
America has the largest amount of debt on their books in history at $7.2
trillion.
Now we get to the Big Lie about frugal consumers paying off debts,
cutting up those credit cards, and eating Raman noodles 5 nights per
week. Household and non-profit debt, which includes mortgages, credit
card debt, auto loans, home equity loans, and student loans peaked at
$13.8 trillion in 2008. After two years of supposed deleveraging,
frugality and mass austerity, the balance is $13.5 trillion. Consumers
have buckled down and have paid off 2.2% of their debts, it seems. Not
exactly going cold turkey, but it is a start.
But wait. Consumer debt outstanding is $300 billion lower. If you
hadn’t noticed, the banks in the United States have been taking a few
losses on their loans over the last couple years. A simple search of the
Federal Reserve website reveals that banks have charged off 5.66% of
all their loans in the last two years. The charge off rate in the 2nd
quarter of 2010 was 6.66%. To verify for yourself go to the Federal
Reserve website:
http://www.federalreserve.gov/releases/chargeoff/chgallsa.htm
So, let’s get down to the nitty gritty. If consumer debt was $13.8
trillion at the end of 2008 and the banks have since written off 5.66%
of that debt, total write-offs were $800 billion. If total consumer debt
now sits at $13.5 trillion, then consumers have actually taken on $500
billion of additional debt since the end of 2008. The consumer hasn’t
cut back at all. They are still spending and borrowing. It is beyond my
comprehension that no one on CNBC or in the other mainstream media can
do simple math to figure out that the deleveraging story is just a Big
Lie.
The truth is that the debt has simply been shifted from criminal Wall
Street Banks to the American taxpayer. These consumer debts were
created in a private transaction between individuals and these banks.
When the loans went bad, the consumer should have lost their home, car,
etc., and their credit rating should have been ruined, keeping them out
of the credit market for a number of years. If the banks that made these
bad loans made too many, they should have failed and had their assets
liquidated in bankruptcy. Instead, the Federal Government has inserted
the American taxpayer into the equation by using our tax dollars to prop
up insolvent Wall Street banks and allowing screw-ups who took on too
much debt to live in houses for over two years without making a mortgage
payment.

The Big Lie will eventually lose out to the grim truth. America’s
economy is built on a debt based foundation of sand and the tide of
reality is relentlessly eating away at that foundation of debt. Collapse
is just a matter of time. The charts below from the Federal Reserve
paint a grim picture of reality.
Total Debt Balance and its Composition

Total Balance by Delinquency Status

New Seriously Delinquent Balances by Loan Type

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Grim. Truth.
at least the colour pallets of the graphs look nice :)
I suppose this means we can't revive the economy by updating our Facebook pages either...
Perhaps liquor and ammunition consumption is keeping us above 70% for the time being.
lol
I'm not expending my ammo. And there are a lot of excellent bottles of wine at the $10 range. I do spend more on gasoline than I used to, but both bikes are in good shape if needed...
well something has supposedly made it worth 34 billion lol. P-O-P !
Well, finally an article that isn't completely stupid. (Cheers all around)
There is no deleveraging in the system, deleveraging SYSTEM WIDE is called a collapse. The only way the system doesn't collapse is getting more lemmings in, leveraging up, not down.
Following a collapse you have to liquidate.
Total credit market debt is $52.2T down from $52.9T, it's not deleveraging... it's collapsing. The system ran out of idiot brick lemmings to put in the system at a great enough rate.
What you are in is the beginning phase of the collapse, eventually the collapse will pick up, then after that the liquidation of all the non-performing lemmings.
I concur. Even a depression assumes some kind of functioning economy underneath it...what we have here is a 75% Borrow and Consume FAILED economic model, and no amount of 24/7 fiat currency printing will ever float it! Beginning of the collapse, and this one will be the biggest the world as ever seen by factor.
Nice post.
The system is working as designed... expand, peak, fail to expand, collapse, eventually liquidate.
Most of the underlying real economy is going to be wiped out when the credit system collapse.
Printing does nothing once the real credit system peaks. It's like beating a dead horse, doesn't matter how much you beat it... it ain't going to run faster. Lemmings are only now realizing they are the printing press and the printing press is being destroyed.
The deleveraging lie is just like the decoupling lie... all fiction. Buzz words that work until the global credit system peaks. Once the global credit system peaked those words mean absolutely nothing.
Mako, can't the system be resurrected with pointed debt jubilee.
Also, I am hard pressed to think the Feds will not have Plan B on shelf. We may like to think of them as fools based on what they state publicly but that is not necessarily what they believe or know. The Feds are trying to keep the game going and will switch to Plan B when certain red flags kick in...
Am I being naive?
They can have any plan they want... it will fail unless they have unlimited power.
Once you realize the system is based on the false assumption of "unlimited", you then know it will collapse. If you could supply "unlimited", I would think that would make you God or God-like.
So, you either believe there is a Wizard of Oz or you don't. Pretending like there is a Wizard of Oz has a relative short life span... I would say 55-80 years.
The government and the central banks can effect the rate, matter of fact that is the job of the CB... to continue the lie as long as possible.
"The Architect - The matrix is older than you know. I prefer counting from the emergence of one integral anomaly to the emergence of the next, in which case this is the sixth version."
There is nothing going on today that hasn't already occurred in the past.
"Am I being naive?"
No, don't think of it like that. You were born into this so it is all you know, you will only experience one system collapse in your lifetime so how would you know?
Once you realize you need "unlimited" power to keep the lie going, you know that the Truth always wins.
What is different this time (yeah, I know!) is that the USD is the reserve currency and unless our trading partners stop accepting or global trade ceases to be based on USD, it appears to me that the Feds have more cushion to try to keep things rolling. The Power-that-be are flooding the system with new monies (pretty much handing out money to their preferred groups) and letting the financial elites to pretend to "earn" large sums, no doubt, with the expectation that trickle down economics and asset price support will kick in at some point. We appear to have more time to allow these changes to be made to the system because of ownership of reserve currency status.
I am thinking that if the Feds/Treasury can get away with surreptitious debt jubilee (without inducing others who are current from defaulting), they may be able to keep this going much longer...
I agree that we can keep our head above water for quite some time... The end will be the same though.
The bigger issue and my problem with the "collapse" issue is that all we need to do is liquidate assets enough for the equation to be in the black again. We do not have to liquidate ALL assets. Obviously this will feel like total collapse and cause complete panic, but at the end of the day, there will likely be some underlying assets capable of performing...
IBIM
As time goes on they need more and more power to sustain the lie. They were able to slow the decline in 2008/2009, the same trick will require much more once the 2010 is up.
You can certainly have slow death periods, but it will collapse and it will have to be liquidated. There is nothing that can be done other than to effect the rate some... as time goes on it will be less and less effective.
It has never been a question of if, it has only been a question of exactly when. The clock is ticking.
In 1998 LTCM was about to collapse the global financial system. It took less than $10 billion to bail them out. Ten years later it took trillions to "avoid" a collapse, and it's not over yet.
Correct.
It's politically infeasible - the losers in such an event have more power than do the potential winners.
Calif could be brought back to solvency for about $500 per resident. Of course, that's just the balance sheet...
It's possible to deleverage system wide without collapsing it. The trick is that you have to have an asset based currency, not a debt based one.
Unfortunately, we are in the latter catagory.
change the system.
Billions don't have to die to sate apocalyptic misanthropes such as you
Grim, grim indeed.
Great article! Hard to argue facts with graphs even CNBS morons can understand. No one knows exactly when it ends but I think this fall when job creation goes negative and 3rd QTR GDP prints negative on October 29th, three days before elections it will be obvious we are doomed. By spring of 2011 America will look much different.
Here is an interesting thought experiment. Suppose that US nominal GDP remained unchanged, so that corporate top-line revenue gain was zero. (This will get us a recession with real GDP contracting at whatever the measured inflation rate is 1% or so). With corporate debt outstanding at 7 trillion dollars, each 100 basis point change in the debt yields 70 billion dollars of pre-tax earnings to corporate america. In the last 4 months spreads have remained ballpark the same while treasuries have come in about 150 basis points from the top or about 100 billion dollars a year. Or about 7% pretax earnings 'growth' (total corporate profit are around 1.5 trillion per year) in an economy where the bearish case comes to pass and we have a double dip recession.
Luckily I've been saved by the anti-drug anti-sense campaign.
http://www.youtube.com/watch?v=o0_x6-83aLo
Jim Quinn has been charging away with great objectivity. This is a great post!
Interviewed on Fox News by Greta Van Sustern this evening, Rep. Debbie Wasserman-Schultz (D) told viewers that the Great Recession is over
Ya that's what rogain said about my bald roomate in college too.
Wasserman-Schultz?
Isn't she the wife of that Monsanto lobbyist and didn't she sponsor that "Food Modernization Act" that seeks to kill the small business farmer and the modern foods movement?
Just asking....
Doom,she ain't no Cracka' for sure.
Solid proof that "friends don't let friends go to UF" ;-)
Hubby, here: http://fedupusa.wordpress.com/us-congress-senate/representatives-q-z/
International Global Metals. Covers a lot of ground, Au, Pb, Fe.
- Ned
(On Topic-nmewn, you around, remember when I said I'd try, well, I'm with your original assessment here.)
But forcing debtors and creditors to bear the consequences of their borrowing and lending would impose forced responsibility and that is so last century. We want the sugar high and have no intention of suffering the after effects. Can you imagine the riots that would ensue if welfare recipients were required to act responsibly?
Can you imagine the market meltdown if the Financial Economy were relegated to the appropriate status of the support function for the Real Economy?
Debt schmedt. This beotch may keep going for another 10 years. Just keep buying gold and once it does all come tumbling down, we'll be fine.
I would disagree. The consumer has cut back all the way on spending because he doesn't have a job, or is doing twice the work for half the pay. He is still borrowing to hang on to his former lifestyle until the recovery kicks in.
Meanwhile back in Washington, Uncle Sam keeps piling it on.
$1,300,000,000,000 annual budget deficit / 310,000,000 citizens = $4,194 of additional debt per person. Let's see, if there are five people in my family equates to $20,970 of new debt in a year (and not much to show for it).
When deleveraging finally kicks in, it's gonna be ugly.
I would have had much more fun and done much better things had our favorite Uncle just given me the $20,000 to spend directly! Instead some douchebag politician just padded an account somewhere.
Dark, is it always only about you? ;-) - Ned
Whaddya mean CNBS mathematically challenged?
A cup + B cup = DD cup
Go braid yer armpits.
'Criminal bankers'? On Wall Street? I thought they changed the laws for themselves to take care of that.
An interesting paper looking back at what took
place during the Great Recession,'The myth of the "Phoenix miracle"
http://voxeu.org/index.php?q=node/5038
Bravo, Jim.
Truth tellers rule!
"The truth is that the debt has simply been shifted from criminal Wall Street Banks to the American taxpayer."
Not to worry. Everything will be fine. We owe it to ourselves - and our selves will get it in the proposed Guaranteed Retirement Accounts (GRAs) as the shapeshifted only permissable asset to be held - and get it good and hard!
I think it is now two "top posts" today where "consumer spending is 70% of GDP" has been mentioned.
Technically what is 70% of GDP is Personal Consumption Expenditures (PCE) as defined by the BEA (I think).
I seem to recall this being discussed on ZH recently or maybe it was at Mish's site or Karl Denninger's site but a search revealed nothing here so I reference this: http://www.businessweek.com/the_thread/economicsunbound/archives/2009/08...
Assume what the referenced author claims is true - that consumer expenditures - actual flow out of our pockets - is closer to 40% of GDP.
So what you might say, and to tell you the truth my head starts to hurt as bad as being presented with a complicated Captcha challenge - I dunno.
It might make the lack of consumer deleveraging even look worse than presented in the top post. But it might also help explain - if consumers like myself are paying off debt, reigning in discretionary expenditures, all in all shutting down more - why the impact on GDP is not more than it seems it ought to be.
OK - the GDP calc is rigged just as the PCE is rigged, but I'd like see analysis like this at least - also - be made in light of a more realistic consumer expenditure model. But I suppose we'd have to agree on what that is.
Pete
Sung to the "Club Can't even handle me right now" by Flo-Rida
(1st Chorus)
You know I know how
To make em stop and stare as I zone out
The FED can't even handle me right now
Watchin you I'm watchin you we go all out
The FED can't even handle me right now (yeahhhhh)
The FED can't even handle me right now (yeahhhhh)
(end Chorus)
Hey
I own the FED and I don't need no help
Gotta be the feeling that Goldman player
Q-easin go wild, can't handle this plan
Life at the FED, arrogant like yeah!
Top like money, all the Houses just melt
One too many all know me like Timothy
Look like cash, and they all just stare
Bottles, Models, standin on chairs
Fall out coz that's the business
All out it's so ridiclous
Zone out so much attention
Scream out I'm in the Congress (Hey!)
They watchin I know this
I'm Easing, I'm Printing
I'm Inflating, I know it
You know it
(1st Chorus)
Hey!
Still feelin myself I'm like I'm in control
Can't stop now, green shots lets go!
Three more quarters can I get a Kato
Mises trying to make me pose
Came to inflate till I deflate no more
Celebrate cuz that's all I know
Tip the Zombies buying the T-Bills
Grand finale like Katrina superbowl
Go, hard! I run the show
That's right wild I've got money to blow
Zero rates, more CPI when I walk in the door
No hype do it big all over the globe
(2nd chorus)
You know I know how
To make em stop and stare as I zone out
The FED can't even handle me right now
Watchin you watchin me I go all out
The FED can't even handle me right now
Putch'yo hands up! (Yeah, yeeaaaaah)
Putch'yo hands up! (Yeah, yeeaaaaah)
Putch'yo hands up! (Yeah, yeeaaaaah)
The FED can't even handle me right now
Putch'yo hands up! (Yeah, yeeaaaaah)
Putch'yo hands up! (Yeah, yeeaaaaah)
Putch'yo hands up! (Yeah, yeeaaaaah)
(End 2nd chorus)
Dow got me watchin now (hey!)
Got my attention now (hey!)
Got everybody in the market wanting to know now
I am Obama's man
Come and be my Cramer friend
We can both, zone, out!
Bring ya t-bills here let me switch up your bond yields
I'll take you outta the FED and up in my new limo
Go print all around the world
(What)'chu want markets?
Are you ready to inflate? Now!
(2nd Chorus)
End song
"The American economy will never recover until consumer spending drops back to the 64% range that indicates a balanced economic system."
Why is that? This seems rather simplistic, to say that consumption (and by extension, savings) have to revert back to some historic mean. We live in an internet era, which means it's easier to consume from the comforts of your home. Whether or not all this consumption benefits people or the environment is another matter.
Leo, Leo, Leo
Systems revert back to the mean, it is the way things (systems, natural and otherwise) work.
Economies (and by extension, economists) hate disequilibrium. Soros has made billions working that angle ... policy made by those fighting for the status quo, and equilibrium wins every time.
If they don't restart the securitization market they are not reverting back to shit.
yep-Shit==New Normal.
- Ned
Are the lenses of your all spectacles rose colored Leo?
There is no form of current consumption that benefits the environment. All destroys. It's merely a matter of how efficiently.
That said, paradigm shift is possible, but unlikely given our current crop of environmental leaders. Environmentalism is as badly broken as the market right now, even as the most severe ecological depression in 65 million years deepens.
This is what the world's leading biodiversity researcher labels as..."The Death of Birth."
Your only logical solution is suicide.
But on the other hand the organisms in the oceans also drove up the share of oxygen, poisoning the atmosphere a few billion years ago - and look what we have today.
“Consumer spending as a percentage of GDP is still above 70%.” – Jim Quinn
Wall Street and the government blame us for what they do!
Consumer spending is "the money that people pull out of their paychecks and bank accounts to pay for domestically-produced goods and services." Whoa! So, you'd think that's what would show up on the consumer spending charts, right? NO! That comes to only 40% of the total of the BEA's so-called ‘personal consumption expenditures,'" says Michael Mandel.
The rest, you wouldn’t believe, is a bizarre collection of former taxpayer dollars and social and producer expenditures and guesstimates bouncing through the hands of government, businesses, banks, individuals forced to pay fees and those spending governemnt transfer payments. And many are just entries which make the government’s economic books balance.
Mandel's revealing profile on Bloomberg Businessweek of the misuse of the consumer spending category is only further evidence of how the government manufacturers an economic picture that favors more government spending and manipulation, and blames it on the people's "greed."
Said Michael Mandel on August 29, 2009, ‘[I]n fact, ‘personal consumption expenditures’ in the U.S. is a grab-bag category which includes all sorts of money—like Medicare spending by the government—which never passes through the hands of households. PCE also includes all the consumer goods imported into the U.S.—cars, computers, clothing, and the like—which create very little economic activity in this country.”
Mandel divided the PCE into five categories (from largest to smallest in billions of dollars expended): 1) Primarily domestic goods and services 2) Import-intensive goods 3) ‘Imputed” services 4) Healthcare goods and services 5) Social services, religious activities, R&D and similar acitivies.
For instance, in just one of these “wonderful categories”—healthcare goods and services, including hospitals, drugs, doctors, nursing homes, and health insurance—“because of the vagaries of national income accounting, most of the money that the government pays for Medicare and Medicaid, and that businesses pay for employer health insurance, shows up in the PCE category… in fact, only about (roughly!) 15% of healthcare spending is ‘out of pocket.”
The #5 catch-all category even includes spending by political parties and the food and housing relief provided by the Catholic Church!
http://www.businessweek.com/the_thread/economicsunbound/archives/2009/08/get_it_straight.html
My point is, why bother—why not just make it all up?
...Reagan, Bush I, Clinton, Bush II and finally Obama to send us over the cliff! Life wasn't that good under Carter either. This is not a good legacy for the American presidential series and our two party system. What's next?
"Household and non-profit debt, which includes mortgages, credit card debt, auto loans, home equity loans, and student loans peaked at $13.8 trillion in 2008. After two years of supposed deleveraging, frugality and mass austerity, the balance is $13.5 trillion"
These numbers don't correspond to what's on the initial bar graph... What's being left out?
This is sad since it would be much easier to face reality and pay the fiddler. No, instead we pretend nothing is wrong and refuse to allow the inevitable bubble collapse. Average Americans suffer for a few greedy spoils.
Isn't this more of, you lowered credit lines, and thus, people paid them off thinking they could get more? But you didn't extend, thus the pay down.
Rinse repeat every so often (like within every measured period) and suddenly you have a 'trend', a pay down trend.
The sad thing is, with leverage, unless you go all the way, odds are, whatever it built back up, will go back down, because you have to go all the way down, before going back up. Except, with this system, when it goes down, it ain't getting back up. Not in this form or craptastic fashion. Not without Glass/Steagall.
Could be great news for the "environment" as well. Nothing like a good depression to reduce carbon emissions.
Cows still gotta fart.
rotting bodies will emit all of their esters. But truly,what is the 'environment'? Was it so perfect in VT and NH in the late 1800's? Why they basically clear cut all of the White Mountains (all 2nd growth now, and birch poplar quite nice. Logging RR now just rotted ties and great hiking paths.
Never could figure out the "baseline" for the "environment"; never thought it was the date I became aware.
Hiked Mt Desert Island since like 6 years old. Granite had been scoured by glaciers (several times) over last lots'o-years. Then vegetation grew bit by bit. Then huge fires in drought in 1947 burned the crown plus a lot of the 'old money' cottages burned. Cottage in this case is a down-sized Hamptons place today. Guess that's where the old money went when they parked their families in Newport (old Hamptons) to "get away".
Why this-go into the Acadia National Park HQ-at least as of 3 years ago, and they do the geo-morphology (how the geology came to be -- I had to ask) and they show glaciers flowing down, 2 mile ice sheets, flowing back. Kinda' like Carl Sagan-got him.
Sorry (but not much) for long post-on the road and finished with the mission.
- Ned
The American economy will never recover until consumer spending drops back to the 64% range that indicates a balanced economic system. For the mathematically challenged on CNBC and in the White House, this means that consumers need to reduce their spending by an additional $850 billion PER YEAR. Great news for the 1.5 million retailers in America.
I would like to offer a similar yet alternative thesis here:
The USA has to grow its domestic manufacturing sector. We have got to build value here, and not export the manufacturing oversees. This is a structural problem: Since the 1970s this country has transitioned to a more service sector and knowledge based economy. We need to find a balance between what we consume and what we produce.
Structurally we are too product focused. We need to provide thick value throughout the whole supply chain. The type of value that truly benefits consumers as well as society as a whole.
Corporations need to have a greater purpose.
Don, it is impossible under our current system to rebuild the industrial base to become net exporters. In order for us to export more than we import 2 things must happen. Either we severely cut our consumption, a likely possibility once the system collapses, or we begin producing exportable goods that on a value basis are superior enough to other foreign made products that they are forced to consume our products vs. producing their own. Based on current technologies and products there are very few goods that we could export as part of manufacturing. We could as a nation explore and extract massive amounts of energy (LNG, Oil, Coal, etc) and/or grains/agricultural products. But the actual manufacturing, defined for the purposes of this discussion as actually making stuff, is easier/cheaper and better produced domestically by other countries or by emerging markets (Chinese as one example). We only have two options:
1. We begin a massive energy development program. Drill baby drill. Foreign markets, specially the chinese are desperate for aditional energy sources. We could easily revert the trade imbalance and retire outstanding debt if we developed the existing on shore and shallow water of shore energy sources. This is not going to happen. The Sscialists in charge are not going to allow offending mother gaya.
2. Invent a new technology/product so revolutionary that the rest of the planet rushes to our door th but as much of it as possible. Said technology must be so difficult to reverse engineer that it would take the Chinese 20 years to steal it. For the life of me I can not think of such revolutionary technology. Perhaps gate technology from the ancients. Or an anti gravity drive / WARP drive? None of those technologies are on the realm of the possible within the next 2 years.
Sounds like the begining of a PLAN. After Obama dumps his financial team maybe we can get some new ideas. DonS is on the right track.
http://www.enotes.com/henry-6-part-2-text/act-iv-scene-2#killlawyers
There is a reason that Government Motors has sold the battery contract to the S. Koreans. Lead poisoning being at the start...
- Ned
The fundamental flaw with this entire post was skipping a number of variables.
What about the inclusion of all those mark-to-myth credit derivatives on hand at the 5 top banks in the USA?
What about all those questionable securitized CLOs coming due out there?
What about all those securitized LBO funds and PIK notes generated by the PE firms?
What about all those super-annuation funds which are heavily invested in endless securitized deals of questionable future value?
There's waaaay too much real debt which has been conveniently overlooked by this poster.
The premise is wanting.....
I suspect the notional balance hasn't declined much because the increase in interest charges on outstanding balances more than offsets any ability to pay off the balances. The taxpayer saved the banks albeit without any choice. Now the banks need to refinance the rest of us at competitive rates or risk outright and massive debt repudiation on an unprecedented scale. We are now just seeing more of the iceberg.
And thats exactly why we have a 2.5% 10 year and a 1.4% 5 year. Residential Loans & Commercial loans (which have a 5 year maturity and draw down period) are coming due and need to be refied.
This Article is nice and the Graphs are pretty. But these are the entire FOREST not looking at trees.
In my household, we have Borrowed about *Whips out calculator
*37,000 dollars on credit either at O% intro rate or around 8 to 25% varible terms in the last .. 5 years or so. This amount was for several large ticket purchasing. Cars, Mower, Burial, Sewer line etc etc etc etc on monthly payment plans.
We knew ahead of time that we cannot ever sustain about 1000 dollars plus interest for these monthly payments in total. So we would pay off these bills and debts with over time, cold hard cash and ELIMINATE the outflow of money each month.
Eventually we are down to just one debt a student loan and that one will be retired next year sometime. A few days ago we paid off 2K and closed a credit card free and clear and we are fixing to move 8,000 dollars to pay off another debt at 9.9 (We have not yet recieved the first monthly payment bill yet.)
Why? There was a security agreement that the installation of this item into the home is not a pernament fixture and can be removed (Repossessed) should we become late on monthly payments.
Bascially getting the hell out of debt right away because we NO LONGER TRUST anyone who lends money. WE want to be the ones with the money for the next purchase.
Unfortunately due to the economy we will have little instead much money but we will answer to no one except the revenue office and IRS/State taxes each year. We expect those to rise quite a bit next year.
If it is the one thing that will break this household is excessive taxes imposed by the National, State, Local taxes trying to keep everything afloat.
At that point nothing matters.
In short, what bills we do have going out total about 700 each month not including food and gasoline (That has been cut back) and our income cash coming in from work or whatever is about twice that.
Yes we are delevering, getting the hell out of debt ASAP. We live, breathe and spend every waking moment waiting for the bill to arrive in the mail on a big ticket item to pay it off in FULL.
When this is all over, we will have very little in the bank. But we will be able to live on just one income and still reaccumulate what we had prior to this very long time of debt payments.
We dont give a damn about FICO. We use credit as a weapon. Always have cash in the bank ready to go in case there is a "Gotcha" hidden in the contract or whatever.
Slowly we are migrating to cash only. Payment paid when services or product is delivered.
Guns, Ammo and related have been taken care of long time ago. We got em on layaway and took em home on the next paycheck a few weeks later a few years ago.
Imagine. Paying 700 per month, income 1000 over and beyond as cash flow postive.
Much better than trying to herd 8 or 10 major credit or contract monthly payments, all of which will in total account for more than our entire montly income. That is bankruptcy.
Now.
If the United States runs out of unemployment, no jobs, kills the US Dollar or otherwise takes away from everyone the ability to get credit, pay bills with a adequate markup or whatever... they can make those big fat charts and very large numbers go "Poof" and call it a bad dream
and start over. Either they can do it or it will be done for them when the debt holders themselves go bankrupt or demand balance to be paid in full due to declining monthly payments from debtors who no longer have a dollar to thier name and are standing in soup lines.
It is the INTEREST CHARGES which keep going up, up and away along with late fees and other gotchas killing the debt holders and floating the bankers and creditors.
That tells me there is a hell of alot of money flowing but only to the pockets of those who have and not to the debt holders who have little and soon have nothing.
If we have nothing owed anymore and are free and clear (Until tax time that is....) then we are ok. If we have nothing at all but the clothes on our backs, we are still ok.
What they should do is start tracking the collections calling versus results. That is where the real battle is being fought and won/lost as these debts are handed over to collections of all kinds to hound, harass and make debtors lives a living hell until the money is repaid in full.
What is REALLY making me very angry is a few years ago the Post Office Mailbox WAS BURIED in credit card offers OF ALL KINDS.
All that is stopped.
NOW we are POST OFFICE BURIED in OFFERS FOR I-PODS, Celluar blackcrapberry plans and wonderful gadgetful tech crap that will not be necessary in our life time if ever.
When will ATT, Sprint, Verizon and all the rest stop trying to get money out of customers who have none and still a Lust for I-crap to stay with the Joneses>?
YES WE CAN
http://williambanzai7.blogspot.com/2010/08/t-shirt-must-haves-for-laborl...
lol i like the button too.
"So, let’s get down to the nitty gritty. If consumer debt was $13.8 trillion at the end of 2008 and the banks have since written off 5.66% of that debt, total write-offs were $800 billion. If total consumer debt now sits at $13.5 trillion..."
Looking at the referenced chart, consumer debt was about $12.5 trillion at the end of 2008 and $11.5 trillion at the end of Q1 2010. It doesn't change the conclusions of the article, but the numbers in the text needs to foot with the charts.
The $13.8 is from the Fed link. It includes non-profit debt. The chart is from the Fed's household debt report and excludes the non-profit debt.
Thanks for the clarification. I'm shocked that there is $1.3 trillion of debt associated with "non-profit entities".
9 out of 10 people still have jobs, handle credit responsibly and are not included in all this garbage. The governments biggest challenge is to liquidate the deadbeats without totally pissing off the rest of the population. It appears that their strategy is to do this in as gradual a fashion as possible to keep it under the radar. Eventually all the idiots will be relegated to third world America where they belong, or they will get up off their asses, acquire skills, and participate in a real recovery. Stop writing the country and the currency off. The regime is a lot smarter than they look and eventually it will fix this mess, not without casualties, unfortunately
9 out of 10 people still have jobs? Look up U-6 unemployment and get back to us. 9 out of 10 people handle credit responsibly? My goodness, where are you getting that from? The regime is smarter than it looks? Can you explain what evidence you would like to point to to back up that claim? Maybe they are saving all the smart moves for the future, when no one expects them. That must be it.
This writer deserves credit for making good points, even though his tone is hysterical and paranoid.
I don't know what the magic right number is for the proportion of personal consumption to GDP, but the author's right, we want to see it lower. If consumers were really deleveraging and saving, it would be coming down, and the shares of private investment (too low) and net exports (deep in the hole) would be improving. Instead, government consumption/investment has gone up.
Also very true that consumers are not bravely and responsibly choosing to pay down debts. They are cowardly and irresponsibly running away from their debts, in droves. But if journalists flattering their readers makes you see conspiracy, you need help.
Tommy boy. Hysterical & Paranoid? WTF article did you read?
I truly amazes me that presenting facts is considered hysterical & paranoid. It just shows how delusional the masses remain.
You need to take your pill.
"So, let’s get down to the nitty gritty. If consumer debt was $13.8 trillion at the end of 2008 and the banks have since written off 5.66% of that debt, total write-offs were $800 billion. If total consumer debt now sits at $13.5 trillion, then consumers have actually taken on $500 billion of additional debt since the end of 2008. The consumer hasn’t cut back at all."
(cough) compounding interest (cough)
We paid about a total of 600 or so in interest because we could not move money fast enough waiting on the next payday at the time. That works out to about 150.oo in income for the banks each year.
Eventually that too, will stop. banks will have to learn other ways to get money.
I wonder if the total interest from the debt holders paid or is pending will be enough to cover this chart and make money for the banks.
(cough) the vast majority of the debt is mortgage debt which is "supposed" to be paid down every month(cough)
So Ann Margaret's NOT coming?
Actually,
Deleveraging refers to another issue... The divesture of New Deal promises we call social security, medicare and public funded support for education... When de-leveraging is used correctly, it means the unwinding of longterm responsibilities and regulations designed to create a world full of individual economic actors making cost/benefit decisions with their resources versus communities of people who advocate for the commons... This is important because very few of us are prepared for the YOYO (you're on your own) lifestyle that de--leveraging or externalizing brings to the masses...
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