Guest Post: It's The Debt, Dummy

Tyler Durden's picture

Submitted by Jim Quinn of The Burning Platform

It's The Debt, Dummy

I think charts tell a story that allows you to disregard  the lies
being spewed by those in power. Below are four charts that tell the
truth about our current predicament. The first is from
The austerity and debt reduction storyline being sold by the MSM is a
crock. The total amount of mortgage debt outstanding peaked at $14.6
trillion in 2008. The total amount of consumer debt (credit cards, auto
loans, student, boats) outstanding peaked at $2.6 trillion in 2008.
Today, mortgage debt outstanding stands at $13.8 trillion, while
consumer debt stands at $2.4 trillion. Therefore, total consumer debt
has declined by $1 trillion in the last three years. The MSM and talking
heads use this data to declare that consumers have been paying down
debt. This is a complete and utter falsehood. The banks have written off
more than $1 trillion, which the American taxpayer has unwittingly
reimbursed them for. Consumers have not deleveraged. They have taken on
more debt since 2008. GMAC (Ally Bank) is handing out 0% down 0%
interest loans like candy again.

Never has a chart shown why the country is such a mess, with no easy
way out. It was the early 1980′s and the Boomers were between 23 years
old and 40 years old. Seventy six million Boomers were in the work
force. Was it the chicken or the egg? The financial industry peddled
debt as the solution to all problems. But, it was up to the Boomers to
take on the debt or live within their means. Boomers chose to live for
today and worry about tomorrow at some later date. There is no doubt
what they did. The chart tells the story. Boomers can moan and blame and
point the finger at others, but they took on the debt in order to live
at a higher standard than their income would allow. This is why 60% of
retirees have less than $50,000 in savings today. This is why 67% of all
workers in the US have less than $50,000 in savings. A full 46% of all
workers have less than $10,000 in savings.

In order for this economy to become balanced again would require
consumer debt to be reduced by $3 to $4 trillion and the savings rate to
double from 5% to 10%. This will never happen voluntarily. Americans
are still delusional. They are actually increasing their debt as credit
card debt sits at $790 billion, student loan debt at $1 trillion, auto
loans at $600 billion, and mortgage debt at $13.8 trillion. The debt
will not decline until an economic Depression wipes out banks and
consumers alike. America will go down with a bang, not a whimper.

Household net worth peaked at $65.8 trillion in Q2 2007. Net worth
fell to $49.4 trillion in Q1 2009 (a loss of over $16 trillion), and net
worth was at $58.1 trillion in Q1 2011 (up $8.7 trillion from the
trough). So, household net worth is still down by $7.7 trillion from its
2007 peak. The really bad news is that the real estate portion of
household net worth dropped from $22.7 trillion in 2007 to $16.1
trillion today, a $6.6 trillion loss. Real estate continues to fall.

You can clearly see who benefitted from the monetary and fiscal
stimulus implemented by Bernanke, Geithner, and Obama. If household net
worth is up $8.7 trillion from the trough in early 2009, but real estate
has continued to fall. This means that the entire increase in net worth
came from stock market gains. As you may or may not know, the top 10%
wealthiest people in the US own 81% of all the stocks in the country.
The other 90% own virtually no stocks, so they have been left
with depreciating houses and inflating bills for energy and food. The
top 10% are about to take another multi-trillion dollar hit in the next
six months as QE2 ends and the stock market implodes. This will knock
the country back into deep recession. 

The most amazing chart of all time is the one below showing home
equity since 1952. In a normal non-delusional world, people pay down the
principal on their mortgage month after month, resulting in their
equity in the house methodically rising. National home prices doubled
between 2000 and 2005. One might ask, how in the hell could home equity
drop from 60% to 58% between 2000 and 2005 when home prices went up
100%? Equity should have risen to 75%. Well the delusional Boomers
struck again. The banks made it as easy as hitting the ATM to get equity
out of your house and the Boomers jumped in with both feet, as usual.
Americans withdrew $2.8 trillion of fake equity from their homes between
2003 and 2007. They lived the lifestyles of the rich and famous. BMWs,
Mercedes, cement ponds (pools), new kitchens, Jacuzzis, home theaters,
exotic vacations, hookers, facelifts, size DDs, and putting a little
more in the church basket abounded.

This astounding level of stupidity and hubris left millions of
Americans vulnerable when the bubble popped all over their faces.
Millions have lost their homes. Almost 11 million more are underwater on
their mortgage. There is years of pain to go. Household equity is now
at an all-time low of 38.1%. What makes this number even more amazing is
that 33% of all homes are owned outright with no mortgage. This means
that the 50 million houses with a mortgage have far less than 38.1%
equity. The people who sucked hundreds of thousands out of their houses
to live the good life deserve to get it good and hard.

The last and most humorous graph shows how home price gains are
fleeting, while the debt stays wrapped like an anchor around your neck.
The greatest bubble in history was clear to Robert Shiller, John Mauldin
and many other people with their eyes open. Ben Bernanke was not one of
those people. He thought we had a solid housing market in 2005. Real
estate values fell from 170% of GDP to 110% of GDP today, headed down to
90% or lower by 2015. The mortgage debt behind this real estate has
declined by $634 billion, from 75% of GDP to 65% of GDP. Most of this
was due to default, not payment.

It should be clear to anyone that we have a bit of a debt problem.
The government solutions jammed down our throats since 2008 have added
$7 trillion of debt to the national balance sheet. The only thing
keeping this house of cards from collapsing immediately has been the
extremely low interest rates put in place by the Federal Reserve. The
end of QE2 potentially could result in interest rates rising. If
interest rates were to rise 2%, this country’s economic system would
implode. Time is not on our side. The debt cannot be repaid. The debt
cannot be serviced. The debt has destroyed this country. Years from now
when historians ponder what caused the great American Empire to
collapse, the answer on the exam will be:


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I am Jobe's picture

need to cover this one


Illinois Insanity: State Spend $365K Taxpayer Dollars to Teach People How to Fish; Hands Out $4 Million in Free Tuition to AFSCME Public Union Workers

swissinv's picture

fishing may be a very useful skill in the near future...

johnnynaps's picture

sure, if only the commercial fishermen didn't destroy the supply

HungrySeagull's picture

They cannot get thier boats that far up the navigatable river system. Flat bottoms rule in our area. I am a ocean going man myself and retain faith in the big fish, if your line is strong enough to reel em.

Now where did I leave that damn VISA to get the boat chartered and provisioned for that run?

Alpha Monkey's picture

I suggest you check this out:

Esp. around the 5 minute mark about sport fishing champion fish sizes, now and then.

Then come back and tell us about that faith in big fish, VISA or not.

ibjamming's picture

I can see it now...everyone in Chicago previously on food stamps fishing every day for their supper along lakeshore drive.

mr. mirbach's picture

Sure but the waters in the Illinois area are so polluted that the fish are not safe to eat. 

FIAT_FixItAgainTony's picture

sick freakin bastards.  i'd have a real scene going on if that was my child.

that was completely uncalled for.

"Refuse to participate in the charade"

CoolClo's picture

Can we say "Deflationary Depression"....

Rational Psycho's picture

Only if they stop printing. My gold's on helicopter Ben and QE3.

CoolClo's picture

Not barely enough private Federal Reserve Notes  available in the world to cover the tremendous debt pile denominated in said FRNs.

Rational Psycho's picture

Which is why I'm betting they'll print more. I expect falling prices measured in gold and rising prices in FRNs.

Sam Clemons's picture

Very true.  That is why they loan more "money" into existence in the form of FRNs.

Debt ceiling will be raised.  Just wait.

Caviar Emptor's picture

Make that "Inflationary Depression" aka Biflation.

The Biflation meme got lots of coverage this morning in financial blogs. It's growing. Because it's real. 

DoChenRollingBearing's picture

Caviar, you always have interesting things to say.  If you would like a link to my blog send me a gmail.  130 Zh-ers (so far and counting) can't be wrong!

Sam Clemons's picture

Nice.  Yeah, I don't see why people always think that each current situation will look like something of the past.  Maybe it is the desire to assume one understands something enormously complex by stamping a word on it.

Hasn't the Shadowstats guy been saying this for years now?

I am Jobe's picture

Beyond deflation. Is there a word for that?


CoolClo's picture

Deflation= The destruction of capitol (wealth)...

False Capital's picture

Paper money is not wealth. An accounting ledger at best.

jeff montanye's picture

u.s. paper money was pretty good 1934 to 1945 and not bad 1985 to 2000 but yours is the way to bet it.

Matto's picture

Wealth destruction + rising prices. The paper/digital money in existance is not eradicted by default but is now representative of a smaller economy.

snowball777's picture

Beyond deflation. Is there a word for that?


mr. mirbach's picture

Profligation = the destruction of an economy through .gov/banker corruption.

Pure Evil's picture

Does one need a better reason to hold PM's?

Fancy Bear's picture

Shorting the market is much higher yield near term.

Burn baby burn!

The Profit Prophet's picture

Don't be a fool!!!  Prepare for the end....which does not involve paper in any form except currency "in hand". Trying to profit from this tragedy is of the same moral fibre as Goldman's Timberwolf play. I expect better from this community......(except for the paid shills of course!!!!!)

T.E.I.N. everyone!

FullFaithAndCretin's picture

Ah thats a bit more like it Jimbo. Another red faced tirade against the boomer generation has been long overdue. I had started to think you were going soft.

RockyRacoon's picture

I guess I missed the demographic graphs.   It's comforting to know that nobody under the age of 50 has a mortgage.

FullFaithAndCretin's picture

Well its all my fault I guess. Climate change is my fault too. And Fukushima.

Misery Index's picture

Can I junk someone more than once?


Just sayin', I have a whole bunch of Gen X'ers that would say that "Yes, you are the problem".

Misstrial's picture

Agree, please see my post below.


Ben Dover's picture

Awesome. You manned up and took responsibility. :D

Mec-sick-o's picture

Good catch.  Boomers, sons of boomers and grandsons of boomers are about to go BOOM!  Each generation sieged under its own debt burden.

Bazooka's picture


Credit implodes because debt becomes too heavy and needs to collapse. The above graphs point to a deflationary tsunami that's dead ahead. The March 2009 to present rally was a temporary relation, a natural rally (ABC form) following a huge collapse in S&P 500.

The next leg down will be left translated and hard and fast! Debt destruction (bankruptcy, foreclosures, etc) will make credit disappear. Credit not being available, many transactions will resort to becoming cash transactions. Can you imagine the house price if mortgage credit is decimated and cash is the only transactional medium? An average American has what....$2k in the bank....can you imagine the resulting price? I believe housing will fall 90% from current levels. This will probably piss alot of people off but once house purchases become cash mediated....price compression will be like never before.

However, physical dollar bills will be hoarded and in great demand. Because, again, without credit, many transactions will become cash. Since there is only $900 billion of USD bills in circulation, you can only imagine the stampede for hoarding once deflation hits the Prechter point of plunge. So, grab all the cash you can now before its too late.

All you Gold and Silver holders....have you noticed that gold and silver move near syn to the equities? Would you consider that if you sell now, better prices could be ahead? Like MUCH better prices: GLD at $490 and Silver at $2.50

Do you realize the most transactions are credit mediated and not physical cash? So, once credit card companies elevate their requirements to get credit cards, force credit limits down ($5,000 to $500), increase interest rates, etc....more and more transactions will become cash and away from credit.

Price decrease on goods is not deflation, it is the result of deflation. So, yes, by 2016, $1 USD can probably by 10x what it does not...perhaps 20x. That means you can buy a mansion ($1 mil today) for $100k or less!

Disclosure: Long VXX, FAZ, UUP

CoolClo's picture




Deflation= The destruction of capitol (wealth)...NOT falling prices which is price disinflation.      Long VXX and SPXU.


InconvenientCounterParty's picture

buy SPXU and hold your breath. When you exhale, sell that MF'er.

Buy physical silver and sleep right.

CoolClo's picture

I agree that SPXU is not for everyone, but with the use of stop-loses and/or option hedging  it can be a very powerful shorting tool. 

Roger O. Thornhill's picture

The only problem with the deflation thesis is that it implies the government will let it all fall down. As we have seen, they will counter every situation with some ridiculous countermeasure to insure cash availability. They also have a bad record with following their own laws - you really have to understand that they will do anything - and I do mean "anything!" That is why there was no reset in 2008.

Inflation is their best way out, it is the stealthiest form of robbery and it is how they will play it, because that is always how they play it. Inflation gives the best money to those at the top and screws everyone further from the discount window.

If there were the rule of law and honesty, I would believe in deflation - but that is not the modus of who we have running the show. Expect inflation - be it bi, stag, or some other ghastly form.


QQQBall's picture

I read somewhere recently that like 50% of people  polled could not come up with $2000 WITHIN ONE MONTH! Not to worry, another 25% said they probably could... Talkk about a lack of liquidity? Brutal. Zombies. Walking Dead. Whatever - that was an amazing and scary poll.

Gunther's picture

In your scenario, how is the governent paying expenses? If nobody has a lot of money, taxes must sink and the current government debt becomes unpayable.

In case of default the dollar bills will be useful to generate heat or as wallpaper.


Bazooka's picture

As I've said in past posts, i believe ultimately the dollar is doomed to hyperinflation.....its coming, but we must first cross the valley of deflation because the great credit bubble unwind is fast at hand. Once this proceeds, then jump into Gold which will be at or near $490; buy up all physical assets (houses, rolex watches, valuabl art, collectibles, vintage wine, Silver coins, etc) as these will all be a pennies on the dollar.

taraxias's picture

Under the existing monetary system deflation is a myth.

CoolClo's picture

Really? Just take a look at the destruction of wealth (deflation) that is occuring in the housing market. No amount of printing has helped it. Soon it will spread to ALL markets.

ffart's picture

If borrowed money is wealth then is it a debt crisis at all? Any contraction in the money supply would lead to mass default and would kill the currency even faster than QE has.

Cleanclog's picture

Debt does not equal wealth.  It just was thought to for the past 30 years.  Yet another reason we have debt saturation.