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: