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Guest Post: It's The Debt, Dummy
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 http://www.mybudget360.com/.
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:
IT WAS THE DEBT, DUMMY.
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Where did the baby boomers go wrong?
Boomers never thought to recognize the good things, the traditions and laws that made things work.
They happily threw the baby out with the bathwater.
The state quickly found that they trust tv more than anything.
They always had someone going out and doing the work, building the world for them, the enablers.
They got addicted to easy living and forgot everyone but the all powerful "I".
Now they "think" safety is paramount. They "think" what they're told to think.
Now the party line doesn't match reality and they're still lost in the murk of media fallacies.
You can see their confusion and dejection.
The party is over.
Total Household net worth as a % of GDP = ~350%
Net external debt as % of GDP = ~25%
The problem is where we are headed, not where we are, which on its own is manageable.
This is one of Roubini's favourite examples.
http://en.wikipedia.org/wiki/Hyperinflation
..one more year of "yes we can" still to reach it, then four(2-3?) more till total collapse/war?
Closing bell coming..
You know where your money is..
Here is a nice video of Henry Rollins, describing the bankers' and politicians' mindsets better than anything:
http://www.youtube.com/watch?v=fxrd_jZJxkg
And since Henry Rollins is a wonderful American civil rights activist, intellectual and has the heart in the right place, he is highly revered in Germany.
Just like Kurt Cobain.
And the best thing about him: He's not part of the establishment.
...old Heny has come a long way from handstands down to M Street but, when it comes to mercy he's still twisted. That point, ''if I recall'', was made clear when he offered his Antichrist (atheist) bullshit before introducing his next guest (that part is not in the clip) who sang pure scripture from the Bible on his show. Now that's Rock and Roll to be sure. Too bad his understanding of mercy does not include his life, up to that point of it. http://www.youtube.com/watch?v=0WShnO6XOwQ
Going to links on ZH is always a trip..... lol
It might be interesting to read the lyrics without having to listen or watch the "angry male, testosterone driven, teenage drama" in that video. (...rolling eyes and shaking head)
But each to his/her own!
Personally, I always thought the guy was likeable, but kind of childish.
Here's the link you're looking for:
http://www.lyricsfreak.com/h/henry+rollins/liar_20065397.html
The people who sucked hundreds of thousands out of their houses to live the good life deserve to get it good and hard.
Amen to that. And the average Boomer can cry me a river.
+1
PS. Very good concise article!
YUP, I agree, but I would add this:
THE BANKERS THAT MADE AND PROFITED FROM THOSE LOANS NEED TO GET IT EVEN HARDER!!!!!!
And I be go to hell if my tax dollars should be used to bail out the bankers.
Why aren't those bankers in jail, last I knew they got record bonuses last year?
But we have another little problem here... alot of those boomers have kids and families... were talkin the next generation.
How much punitive suffering should we impose on those children?
We are all going to suffer ,some moreso than others. An all out total collapse is inavoidable now and frankly i'm mentally prepared and welcome it - it will be the only way to clean house. Banks , political structure , the financial system, society as we know it : all going to burn until we get a grip on moral hazard and bring back some ethical standards to both our politicians and ourselves. Generally speaking , we , society , deserve the pain , we have been complicit in this overconsuming , overleveraged nightmare. Hypocrisy abounds.
That means boomer children and grandchildren who are still sleepwalking their way to the mall each day are going to be in store for much suffering. I wouldnt call it punitive , theres no mallice and no escape. It just is.
No one will be spared and theres too many idiots to try to save financially. Hard times are coming. Incredibly hard times. The silver lining will be that not every slug in the ruling classes will be able to skip town to Paraguay and the moronic herd of junkies will - after the shellshock of what happened to their tv-dinner , i-pad munching dancing with stars twitter bullshit existance has passed - strike out in blind fury. Hopefully there will be an internet in some form so i can read all about the sheeple backlash.
Count me out though , the risk is there will be massive scapegoating and propoganda campaigns that misdirect the fury of that herd and they'll probably end up fighting between themselves. I dont know whether it will along racial , class or generation divides , but society is about to get sliced and diced.
I'll take a pass. I'm not putting my balls or my familys safety on the line for the self-entitled assholes who want the latest Reality TV stars handbag or the self-entitled assholes who control govn and the banks. Im spending most of my time searching for the right place to move to...
wake me up if society gets a clue.
If I were a bettin' man, I'd go with race. It's the more difficult trait to disguise, and the nature of a self-segregated society makes it easy for lots of folks to have avoided "the others" for most of their lives. Not so with the generational divide, and the class divide is too difficult to spot.
Rates are historically low...is inflation really a problem, honestly? I think we need to continue to keep credit flowing until the most serious of questions is answered: unemployment. I hate to sound like Lou form the Left but if we cant work to lower unemployement, our debt struggles will continue to exist. At a time of high unemployment and low rates, stimulus is the answer. If rates continue to stay historically low, crowding out shouldnt be an issue.
deleted. changed my mind.
Come on... I enjoy reading your post... what did you have to say?
Is paying down mortgage debt honorable and decent when the money loaned to you was created "out of thin air"? Fractional reserve banking always favors the rich and powerful, under this system, we are all serfs - prepare wisely and carefully...
Let's lay some real blame.
When did this debt accumulation happen? Who was watching it? Who could have slowed it down? (big bump in 2001)
Bush and the Federal Reserve. Why Greenspan and Bush are not pariahs in society is beyond me.
Free markets are a scamMarkets need to be regulated to work well, otherwise the scam artists make all the money and the pople get screwed.
Wilson you're a fucking idiot!
You don't think Rubin, Frank, Dodd, Clinton and Franklin Raines were a primary cause of this out of control borrowing of money to buy houses???
To make this a partisan issue, to have shmendricks like you believing that democrats aren't equally responsible for this mess is a feather in the cap of all propagandists everywhere and proof positive that you can fool most of the people all of the time.
And in your take on the universe, there weren't trillions in private securitization right along with that?
Of course there was. I didn't say contratriwise.
Read it again: the FACT is that both partys are responsible in at least equal measure and PARTISANSHIT has no place in it.
The values of the America Society (sheeple) are formed by the visual media. The people who are "getting screwed" bought into the consumerism of America!
The people who saved and lived within their means are the ones getting a "raw" deal due to the real neg interest rates earned on money.
In the words of John Wayne:
"Life is tough, but it's tougher when you're stupid"
People need to grow up and take responsibility for their actions! That includes the people who took the loans and the bankers that made them.
1694 A.D. Introduction of central banking to the UK.
Central bank acts as a lender of last resort to banks (moneylenders) and so the moneylenders are able to take larger risks and lend at lower rates (to more people) than they would otherwise be able to.
..... well, you know what Dr. Faber says, " When you offer the people cheap money, they're going to take it. "
so, in my opinion it isn't the victim debtors, it's the scheming, calculating bankers .
& stop blaming everything on the boomers, we were a huge population that was targeted by big corporations & banks to earn money from . Decisions & policy was made at the highest levels of government & corporate America to maximize their profits from this large demographics during the boomers' peak productive years ....... & think of all the taxes the boomers paid ! funny, everyone sure did LOVE the boomers when we were paying all those property taxes & income taxes & F.I.C.A. taxes !!! ....... now, we're being reviled & stomped upon.
It is this same contemptuous view that leads to the tyranny of our state and the nannying and patdowns that ensue. The populace is not so stupid as to be incapable of doing rudimentary math and understanding how to balance their finances. The problem is we live in a society without accountability... for the top or bottom... and everyone feels entitled to lead a life of luxury and availability. The only thing we'll be eating for a while is humble pie.
What boomers were paying was also ethereal... production having been declining/gone during their peak earning years...
Decisions were made on a personal level to overleverage and live outside of personal means with the hopes of being able to pay the bill in the future... and, if not, file for bankruptcy. While decisions were made at the top, decisions were made at the bottom.
In the end, consumption is consumption... production is production... and savings are savings. Tough lessons to learn, but I've found the best way to learn is to watch others' mistakes rather than live through them myself.
+1000
Truthfully and diplomatically stated, MM.
imo, its actually much worse about the Boomers than the article asserts - Boomers have been the primary landlords for 20 years that have forced the costs of their entitled living standards on to renters like me.
So far, my rent has put 2 students through Stanford and 1 student through New Mexico State University.
Boomers in general - I am aware that there are exceptions of course - however the majority of Boomers set about to make everyone younger than them pay for their life choices:
1. multiple divorces and remarriages which resulted in a "churning" and heavy turnover in the residential housing market thus creating excessive demand for which the social framework had not contemplated,
2. multiple kids out of wedlock or from re-marriages which placed further demands on housing markets (Schwarzenegger, Edwards, et al),
3. "job hopping," "job shopping," (ie: staying at one job for about six months to a year and then leaving due to a higher wage offer at another company thus driving up the cost of labor),
4. flipping residential properties and/or "trading up" or "leveraging up" and thus driving up the costs of shelter for those younger or financially vulnerable,
5. raising rents so that renters could not save for a home of their own and thus creating "perma-renters" - a stabile pool of people who could always be counted on to *have* to rent, thus making an ever-increasing financial bottom-line predictable on the backs of those least able to afford it,
6. And last but not least, aborting 40 percent of Gen X'ers and Millennials thus making certain that a future crisis in Social Security would occur due to a low worker/retiree ratio.
There is a reason the Boomer generation is referred to as a "pig in a python." A pig - not a fawn or a lamb or a kitten, but a *pig.*
In my area of coastal California, the Boomers have taken to a low profile for about 2 years now. They know they are guilty.
~Misstrial
The answer lies not in the markets and as humans who are by nature self absorbed, we need negative reinforcement .
The answer lies in the how, as in how we re-set .....globally everyone is on track with us, or there already. The actual tipping point has yet been reached but it is, as the article alludes, oh so close.
There is really only one re-set button that will wipe this all away and start a clean slate for winners and losers both- think 1939.
Where in by the end , 1945, every major industrial country but ours lost and had to rebuild 70% of their manuf. , service and major portions of their civil infrastructure[s] ( or like Britain had an anemic one, solely sourced by imports) and had next to zero consumer goods market.
The boomer foray into debt. came after all of the accrued advantage of ww2 as we remained the last man standing fully upright was expended as markets globally expanded and became self sufficient ( there fore ‘ours’ at home shrunk) and we no longer were willing to live without that with which we had become accustomed as we rode the wave from 45 to 75…no nation, no matter how rich (in historical context) can; a) create a prgm. from scratch and put a man in the moon in a decade or an alike expensive venture, b) sppt. Over 500K men in combat 10K miles away for years, c) create a Ponzi entitlement program (pogrom) for the masses, minus some form of de-leveraging in the space of 30 years without mishap.
Pick any era since the advent of credit and any nation; Spain, the Dutch, the English ( they lasted longest or had the greatest arc because they utilized and had a monopoly on global mercantilism which we have since lost as they did), France, Germany, the Hapsburg empire….
The re-sets that built the ‘modern’, Europe all came about via war and the ability to refinance/de-leverage or not their depleted fisc. at the expense of another as they vied for primacy.
Consumer debt. as a force has done what centuries of brutality used to, but the balance has been destroyed as it has innervated one and all, and there is no where else to go.
Of course there are better systems than the one we currently have; however, don't expect this one to evolve into a more charitable and benign one. Real money is real freedom, protect the fruits of your labor...
Good article. It's what I see "on the streets."
Namely, fewer and fewer people are paying for anything...not paying their mortgages, student loans, doctor bills, etc since they see nothing happens to them.
It's a serious breakdown of our society and seems to be worsening rather then abating.
It was the FRAUDULENT debt, dummy. (there you go)
They took out a loan instead of fighting the obvious idiocy of the structure (new and they didn't fight it but accepted it, then went to bat for it), fucking pussies. They didn't care much we were off the gold standard. They didn't care much about the outsourcing. They didn't care much about the middle class squeeze.
Just give 'me' tax cuts and bullshit. I'll sell my country down the river for coke and disco balls. Detroit? See ya. You have unions which are the problem in this new paradigm. You have to accept less, and I'm going to make a killing shutting your sort of towns down...and you did.
They didn't care about anything real, just whatever bullshit sophistry filled the answer space decently enough to allow them to get back to whatever idiocy they passed their time with.
They didn't care about the invention of a whole new bullshit ideologies from spiritual candles to trickle down theory, they even called their idiocy a revolution. (as in opposite of American revolution? that's what the Reagan revolution was...enslaving us)
Because you see facts NEVER mattered to this generation, only what they got out of it. I'll (they'd) believe a heart is a diamond if you give me some fiat...or coke or both.
They didn't care about the weakening of Glass-Steagall's standards, and surely didn't notice the exact precursors to our problems. A little mexico problem here, a little s&l problem there. A little 1987 crash...who cares??? It can't be this selfish idiocy revolution that spawned bullshit pathways that spawned it. A little nasdaq, and even 2008. Each time destruction was wrought upon America, but these assholes always professionally survived, and because they did, they thought wow...it worked (ivory tower)...and when the crises became bigger and bigger, they in their titanic ways went full steam ahead on the bullshit, destroying America.
I've said it before and I'll say it again, what we have is trickle down theory on steroids...and somehow they still believe against 40 years of facts proving otherwise, that the money, will trickle down. It won't. But price raises sure did.
What wealth has this entire generation created? NOTHING. Unless you count taxpayer funded stadiums (and built by foreigners)...what the hell else tangible has been built? NOTHING.
We have a fraudulent debt problem. The solution has always been Glass-Steagall. Quit destroying the real economy to keep the fantasies of sycophants going. Tom Browkaw should right another book entitled, The Worst Generation. The sell America down the river generation. At least Judas got silver, these idiots got fiat. Sure not all boats are in this harbor, but in aggregate enough to do THIS were....TO america. (and they didn't stand up)
Where's our factories? Where's our big water projects? Where's our space program? Where's mag-lev? Where's fusion? Where's our fucking wealth? Our coked out generational parents don't know, they just want the bender to continue. A whole generation who lived their life as one big lie. What a fucking waste. Some should have on their tombstones...did nothing, achieved nothing...like one of their leaders Ben Bernanke.
Glass-Steagall is the reset button, and it does it right. Want to avoid french revolution or WWII all over again. Glass-Steagall and push it worldwide, is the way to go and gives us our ONLY shot.
You can't tear down everything in crash fashion and expect a different way. Glass-Steagall targets the fraud inside of, and the fucked up structure of they system, and routs those. We need a targeted reset, not a crash, otherwise we're doing 'some' of the current sycophants bidding for them.
Glass-Steagall or you are helping those you hate.
Please join me in contacting your congressperson to either co-sponsor or support H.R. 1489 - The Return to Prudent Banking Act of 2011 - which reinstates Glass Steagall.
http://www.govtrack.us/congress/bill.xpd?bill=h112-1489
The entire text of this proposed law:
"To repeal certain provisions of the Gramm-Leach-Bliley Act and revive the separation between commercial banking and the securities business, in the manner provided in the Banking Act of 1933, the so-called "Glass-Steagall Act", and for other purposes."
~Misstrial
Wrong. Boomers took on debt because the formative experience of their youth was the hyperinflation of the 1970s. I remember well being sent to the store on my bike to pick up 40 boxes of Kleenex on sale--that was the kind of investment a normal family made, because the price was sure to be higher the next time you went to store.
The difference between gold and real estate is that real estate is not "fungible" - land/home prices will decline as the economy surrounding them does. Meanwhile, gold is sold in every market on earth and as the US implodes, even in a deflationary way, there will be a move to gold. It can't go to zero - FRN can.
I just read every post here, some were good.
I agreed with about half. Am I as fuking crazy as all you?
OMG !
So its the fault of the evil 'boomers'?? really interesting.
First I am not some old bitter fart -- I am 36 years old which these days is really in the same generation socially as most of these too cool for school 20 somethings that the media loves portray as 'victims' of those evil republican policies.
Seems to me like it is Gen Y aka 'Millenials' who have this crazy amount of credit card debt. Actually the average 25 year old has 4 out of 5 parts of the MACS (mortgage, Auto, credit card, student loan) -- you know people under 40 don't know squat about saving money or worse having to sacrifice their material wants. They were brought up learning that revolving debt is good, appearances count more than anything, whom you 'hang with' will determine how much you will make etc... Does anyone know anyone under 40 without a smartphone?, who doesn't own multiple HDTV's in a one bedroom apartment??, who actually knows how to cook a meal?
I admit I am guilty of this myself -- yes I found myself into about $70,000 worth of credit card debt at the end of 2008 but I was taught something called 'personal responsibility' and now have only about $14,000 left to payoff. I don't make alot of money -- only about $115,000 a year -- don't have a family, pet, or high maintenance S.O. I need to support. However, I still see people eating out every night, wearing designer clothes, the newest smartphone. OK -- I did spend $550 on a Blackberry Torch but I will pay it off at the end of this month.
Why hang in a social scene that you don't respect?
I know a fair number of under-40s who don't have smartphones and big HDTVs and who know how to cook. Sure, plenty of them are as you describe, but I don't spend much time with them because I don't really share their outlook on life.
You realize that you make more than 2.5x the average household around these parts, right? You're in what I like to refer to as the "chamelion" class (formerly known as the middle class). On the one hand, you have the wherewithal to stay afloat during these turbulent times, but at the same time, sympathize more and fashion yourself as being a member of the middle class/not a club member. Often times, you're forced to put on a different shoe depending on the circumstances...
At 36 with that much debt, I can't fathom you've got much of a net worth... I'd suggest stop spending money on blackberries and building net worth without leverage. It's a long slow march, but before you know it, you'll have real assets and sleep better at night. If you get started young, it makes it a helluva lot easier...
How can someone who was taught personal responsibility have $70,000 in credit card debt? And still owe $14,000? Think about the interest you've pd on this.
Intreseting point of view. Thanks for sharing. Sameday loans