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Guest Post: The United States of Debt Addiction

Tyler Durden's picture




 

Originally posted at GoldSilver.com,

16 point 7 trillion dollars.  That is our current national debt.  12 point 8 trillion dollars.  That is the amount households carry in mortgage and consumer debt.  We are now addicted to debt to lubricate the wheels of our financial system.  There is nothing wrong with debt per se, but it is safe to say that too much debt relative to how much revenue is being produced is a sign of economic problems.  At the core of our current financial mess is how we use debt as a parachute for any problem.  We’ve been masking the shrinking of the middle class by allowing households to take on too much debt for a couple of decades.  The results were not positive.  Too this degree, we have now created a massive moral hazard economy where savings are punished into oblivion.  There is very little incentive to put your money in a bank account yielding zero percent interest when real inflation is eating away at your money like a hungry wolf.  So what do people do?  Well many simply cannot save and therefore choose to go into debt to finance cars, housing, and education with very little down.  Where does this debt addiction lead us?

A little bit of deleveraging

US households have deleveraged from the peak in the crisis.  However, much of this deleveraging has been forced via the 5 million foreclosures that have occurred:

 

I’m not sure if we can interpret that as some sign of a healthy and growing economy.  Households have had their access to debt limited in many sectors.  Yet one sector that never retreated was that in higher education.  There is little doubt that there is a major bubble in higher education.  Instead of addressing the problems head on we now have more access to debt as the solution.  In order to compete in our service driven economy, having a skill is very important.  Most will make the investment to pursue a college degree but the issue is that with easy access to debt, prices have soared.  It is no surprise that college prices are following the trajectory of what happened in housing.

If you look at the above chart, a big part of the contraction has come from deleveraging from mortgages and credit card debt.  Yet we are now once again loading up on auto debt and college debt.  The system is now setup to punish any type of savings.  Good luck trying to stash your money in a bank account and outrun even the steady pace of inflation.

Take a look at the current savings rate for Bank of America:

Of course the Fed has a hand in all of this.  The Fed realizing that our system for over a decade has been juiced by debt spending, had to step in and make it unattractive to save to the point that people are willing to dive into risky investments yet again.  Because of this however, you create moral hazard.  For example, with housing you have many government backed loans that are now accessible with very little down.  In fact, this has been the path of ownership for most Americans since many are without savings.  One out of three Americans has no savings and nearly half are one or two paychecks away from being out on the streets.

This is why we have seen such a dramatic rise in food stamp usage:

Why save to buy anything when you can simply go into debt for it?  That seems to be the course we are treading on.  We have reached a critical point where our national debt is now higher than our annual GDP.  This crossing of the Rubicon is seen as a major financial tipping point.  We have also mastered how to hide certain employment figures:  


If we look at the U7b measure, the unemployed + underemployed + discouraged workers are nearly up to 25 percent.  We were discussing how many younger Americans are simply riding out the weak economy by going to college.        

People think that this recovery has come from organic forces when in reality, it has come because of number games and also the Fed injecting trillions of dollars into the banking industry.  Ironically these banks are using this money to speculate in markets like stocks and housing where they are now crowding out working and middle class Americans.  When you have access to a printing press with no restraints, it becomes too tempting to spend into oblivion.  Instead of confronting the core problems of the crisis, we are simply repeating them yet again; easy access to low down payment mortgages, easy access to student debt, consumer credit slowly expanding, and major Wall Street speculation.  Addictions are never easily cured and we have yet to come to terms with our insatiable appetite for debt.

 

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Wed, 02/06/2013 - 13:32 | 3220454 rosiescenario
rosiescenario's picture

....so debt is the 'astro-glide' of modern economic intercourse?

Wed, 02/06/2013 - 13:41 | 3220482 recidivist
recidivist's picture

so says Reacharound Ben

Wed, 02/06/2013 - 13:46 | 3220510 trav777
trav777's picture

nothing wrong with debt per se!??!

Why every religious text has shit recommending very strongly NOT to be in it and forbidding usury?

Oh I mean except for the jewish portion which mandates interest lending to outsiders.

Wed, 02/06/2013 - 13:48 | 3220519 hooligan2009
hooligan2009's picture

In international lawodious debt, also known as illegitimate debt, is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of thenation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

Wonder if anyne who deals in "funny money" is a criminal!

Wed, 02/06/2013 - 14:02 | 3220538 TruthInSunshine
TruthInSunshine's picture

Debt is a cancer. Period. The only exception is if you're accessing debt that you know never has to be repaid and has no consequences if it's not, as the too-big-to-fails are so privileged.

Look at the article on the sad scenes in Greece, where people rush & trample to grab donated food in some parking lot (that's being played in many "developed" parts of the world).

This is what inevitably follows when a nation's "democratically elected leaders" get bought off, and the smiling suits from Goldman & JP Morgan are unleashed across the countryside to sign everyone from the local restaurant owner to the municipal council into debt servitude on the promise of eternal prosperity.

Compare the scenes posted in that Greece article with travel channel shows of 5 years ago, when nuveau-riche Greeks were sippin' champagne and enjoying Belon oysters on iced silver platters while at cocktail parties discussing seaside real estate.

Before you know it, they'll not only own your house, but your utility companies and even your parks, bitches!

While many Greeks imprudently got suckered into signing themselves and their children into debt slavery, there will be collective punishment for the entire nation as they are collectively impoverished and pieces of the their actual, physical country & infrastructure are part-and-parceled, to be sold to the highest (as will be in Italy, Spain, Argentina... - and is happening right now in parts of the U.S.).

Fractional fiat conjured at zero cost basis and distributed to the lieutenant dealers for the fractional central banks, which is then believed to be "worth something" and is borrowed by people and businesses on lofty pitches and dreams, that actually turns out to be worth just enough to disposses them of the only things constituting wealth that they really only had all along...

They give you something that you think is worth "X," and that you believe you want/need to the extent you are willing to pledge something that really has value and utility to you and your family in exchange for it, and then BOOM!...that "X" really isn't worth much, but is enough to take away that which you pledged for it...

...that's sooooo fractional reserve banksterish!

 

(This is an example of how people like Paul Krugman are either enablers of crime or useful idiots, preaching their MOAR DEBT PLEASE mantra.)

Wed, 02/06/2013 - 14:04 | 3220570 BeerBrewer09
BeerBrewer09's picture

Hey! If I was a scientist, you know what I would clone? Hot dogs! Think of all the possibilities, Norm! Imagine, a world with...Hey, what's going on? Imagine...hold on! Imagine a world, uh...of - with an endless supply of hot dogs! You could have a hot dog anytime you wanted! They'd be so abundant, they'd become our currency! 20 hot dogs would equal roughly a nickel. Depending on the strength of the yen, I'm not quite sure, but...you know what, I'm getting ahead of myself. Let's just keep praying that we can clone one of these hot dogs.

-Will Ferrell As Harry Carey

Wed, 02/06/2013 - 14:08 | 3220585 hooligan2009
hooligan2009's picture

hot dogs are made of lips and assholes..so wall street would grap that monopoly before you could pucker up

Wed, 02/06/2013 - 14:19 | 3220616 TruthInSunshine
TruthInSunshine's picture

But what to name the new "lips & assholes" Asset Backed Security?

Wed, 02/06/2013 - 14:32 | 3220665 ZerOhead
ZerOhead's picture

"We are now addicted to debt to lubricate the wheels of our financial system."

Hate to be stating the obvious here but debt IS the financial system these days... and also unfortunately the only part of the economy that appears to be growing...

Print on B.S. Bernanke... Print on until we are prosperous once again...

Wed, 02/06/2013 - 14:48 | 3220747 LawsofPhysics
LawsofPhysics's picture

correct.  Lending based on productive capital (savings) makes why too much sense and would require that bad business models actually die and are not bailed out. 

Wed, 02/06/2013 - 15:11 | 3220842 NotApplicable
NotApplicable's picture

Laugh at that BoA 1 bp rate all ya want, but realize it's still an infinite increase from the zero rate that's coming!

Wed, 02/06/2013 - 14:59 | 3220795 hooligan2009
hooligan2009's picture

sponsored by the Lips and Assholes Banking Industry Association?

Wed, 02/06/2013 - 14:56 | 3220784 dmger14
dmger14's picture

I like reading what you have to say and hate the banks who got bailed out AND the fed.  However, I also have no compassion for borrowers who willingly walked into the banks and signed up for debt, yet now want to have no accountability for taking out the loans they are unwilling or unable to pay back.  After all, when house prices ROSE, their was never any clawback provision for borrowers to pay back MORE than the terms of the loan.  I think as long as people can someone else or some other entity to bail them out of their contractual obligation, we will have moral hazards and problems going forward.

Wed, 02/06/2013 - 15:04 | 3220809 TruthInSunshine
TruthInSunshine's picture

 "I also have no compassion for borrowers who willingly walked into the banks and signed up for debt, yet now want to have no accountability for taking out the loans they are unwilling or unable to pay back."

Agreed.

Wed, 02/06/2013 - 19:54 | 3221713 Lonewar
Lonewar's picture

dmger14,

After all, when house prices ROSE, their was never any clawback provision for borrowers to pay back MORE than the terms of the loan.

 

That statement is in error. My mom and dad bought a house in 1996 via American General Financial. The loan that they had had a Pre-Payment penalty of a minimum of $5,000 or 0.5% of the Principle Outstanding if the loan was paid off prior to the maturity date. So when my mom had refinanced from the 13.99% that she was paying for that loan, (9 years into the loan), she had to pay ~$5500 for that priviledge.

So yes, there are "Clawback" Provisions put into loans by lenders. Hell, my current re-fi that I just did has a provision that states that if the bank looses any paperwork that is needed to make the loan complete, I am responsible for completing that paperwork again, at my expense...

Welcome to total control of money and law...

Wed, 02/06/2013 - 15:05 | 3220813 emersonreturn
emersonreturn's picture

TiS...+1.  sadly your insights are too true.  thank you.

Wed, 02/06/2013 - 14:17 | 3220615 Dick Buttkiss
Dick Buttkiss's picture

And no better way to glide than with a low/no down payment, low-interest-rate 30-year fixed mortgage that you'll be paying off with Monopoly money down the road.

T

Wed, 02/06/2013 - 13:32 | 3220456 Banksters
Banksters's picture

Given that every dollar in existence is owed to a bank, I suppose this makes sense.  Money is debt, after all.

Wed, 02/06/2013 - 13:33 | 3220460 Oquities
Oquities's picture

i have been debt-free since 1990

Wed, 02/06/2013 - 13:40 | 3220480 Boston
Boston's picture

Sucker!

Wed, 02/06/2013 - 13:41 | 3220484 Oquities
Oquities's picture

i did feel taken advantage of.

Wed, 02/06/2013 - 13:44 | 3220504 redpill
redpill's picture

Yep they've fleeced you.  But I bet you sleep better at night anyway.

Wed, 02/06/2013 - 14:23 | 3220638 Oquities
Oquities's picture

they are giving people in my state up to $30k for paying back taxes.  no payback if you stay there for 5 years.

Wed, 02/06/2013 - 13:46 | 3220512 hooligan2009
hooligan2009's picture

I am Spartacus! me too (well 2006 anyway).

Wed, 02/06/2013 - 13:34 | 3220464 km4
km4's picture

The CBO Has Made One Assumption That Will Almost Certainly Be Proven Wrong

by Bruce Krasting, My Take On Financial Events

http://www.businessinsider.com/cbo-everything-is-going-to-be-great-2013-...

A few snippets of data from the Congressional Budget Office’s Budget and Economic Outlook 2003.

  • Estimated 10-year budge surplus = $5.6T.  Reality = $6.6T deficit. A 200+% miss.
  • Estimate for 2012 Debt Held by Public = $1.2T (5% of GDP) Reality = Debt Held by Public = $11.6T. A 1000% miss.
  • Estimate for fiscal 2012 GDP = $17.4T Reality = $15.8T. A 25% miss.

I think the CBO is out on a limb with this critical assumption. I think they are all wet with the generally rosy outlook it says is in our future. If you believe the CBO, the last thing you would do would be to address some of America’s daunting problems. After all, everything is going to be on easy street, so why sweat the small stuff? If we just do “nothing” -  everything will turn out just fine.

I think the CBO has done our legislators, and the country a disservice with this report. A great excuse to do nothing for a few more years has been created. I’ll be generous, and give the CBO a D+for this effort.

Wed, 02/06/2013 - 13:35 | 3220467 Hal n back
Hal n back's picture

wow-used a shadow stats chart without giving due credit.

 

Wed, 02/06/2013 - 14:15 | 3220610 SeanJKerrigan
SeanJKerrigan's picture

Which one?  I don't recognize any of them from there.  The U7 number is pretty common if that's the one you mean, but I don't think that particular one is from ShadowStats anyway.

Wed, 02/06/2013 - 13:41 | 3220483 fuu
fuu's picture

I'm actually 12 days into not smoking. Fuck you all.

Wed, 02/06/2013 - 13:44 | 3220503 hooligan2009
hooligan2009's picture

i'm stubborn and on the way to being broke and ill....INHALES!!!!

Wed, 02/06/2013 - 13:46 | 3220508 4Y_LURKER
4Y_LURKER's picture

Re: Fuu

Same here!  Good job man.

Wed, 02/06/2013 - 14:20 | 3220627 IridiumRebel
IridiumRebel's picture

Good job.....been 6 years for me. I don't even drink anymore. I am addicted to prepping.

Wed, 02/06/2013 - 14:36 | 3220706 tarsubil
tarsubil's picture

As with most addictions, the first period immediately after giving it up is the worst. Smokers actually have worse health statistics immediately after quitting. That is, their health worsens. But after that initial crappy period, their health slowly improves until after many years their stats match that of non-smokers. Don't start again. That is the worst thing you can do. Best to just go through the crappy period once.

Wed, 02/06/2013 - 13:44 | 3220496 hooligan2009
hooligan2009's picture

Pierre-Joseph Proudhon said that "property is theft"

Here's another... unsecured borrowing is theft"

that makes most of us.....?

Wed, 02/06/2013 - 13:44 | 3220497 irie1029
irie1029's picture

I pity the people who believe MSM and their recovery bullshit.

Wed, 02/06/2013 - 15:07 | 3220825 otto skorzeny
otto skorzeny's picture

you think they're going to bite the hand that feeds-like Brian Williams at NBC is going to come out and say "Yeah-drones w/Hellifire missiles over the US is one of the most evil fucking things ever" and lose his $18 million a year?

Wed, 02/06/2013 - 15:18 | 3220868 NotApplicable
NotApplicable's picture

I saw a local news story just this morning about the local housing bottom. Prices up, inventory down! All time low interest rates!

Nope, no shadows here. Not a one.

Wed, 02/06/2013 - 13:44 | 3220499 Stock Tips Inve...
Stock Tips Investment's picture

Obviously a debt of that size can affect the future of our economy. However, the most important thing is to determine which is the tendency of this debt. I come saying for some months in my blog, the government only needs to give some clear signs of direction. If he can take the necessary steps to reverse the trend of increasing debt, very postivamente reacionara market in relation to the U.S. economy. If this happens, half of our problems will be gone.

Wed, 02/06/2013 - 13:49 | 3220522 hooligan2009
hooligan2009's picture

yep, pay down debt, deleverage and live free.

or

if you are a poltician/central banker...increase debt, leverage more and leave your descendants as debt slaves.

Wed, 02/06/2013 - 13:44 | 3220500 Falconsixone
Falconsixone's picture

Can I buy that iphone with my foods stamps?...hahaha...that food stamp graph kills me...

 

Amendment II. A well regulated unemployed militia, being necessary to the security of a free unemployed state, the right of the unemployed people to keep and bear arms, shall not be infringed

Wed, 02/06/2013 - 13:45 | 3220506 DavidC
DavidC's picture

We've had 50 to 60 years of debt growth since the emergence of modern credit cards in the 1950s and 1960s, followed by the Central Banks flooding the system with money and Central Banks interest rates floored at zero (or near zero) in order to keep the whole thing going. Sustainable? I don't think so.

DavidC

Wed, 02/06/2013 - 14:51 | 3220761 LawsofPhysics
LawsofPhysics's picture

Krugman says growth is perpetual, so infinite credit works, and he has a nobel, so you are clearly wrong.  < sarc off >

Wed, 02/06/2013 - 13:45 | 3220507 pulladan
pulladan's picture

0.01% APY?  What's the difference between this and keeping your money under the bed?

Wed, 02/06/2013 - 13:52 | 3220528 Bastiat
Bastiat's picture

If it's under the bed you don't have to ask somebody for it.

Wed, 02/06/2013 - 13:53 | 3220536 Bam_Man
Bam_Man's picture

You don't get charged a $2 ATM fee for removing some of your money from under the bed.

Wed, 02/06/2013 - 14:04 | 3220572 hooligan2009
hooligan2009's picture

cleaners wives and hookers won't steal your money from under the bed.

Wed, 02/06/2013 - 13:47 | 3220514 Meat Hammer
Meat Hammer's picture

Depressing.  Maybe I'll have to "meet my asian lady today" to feel better.

Wed, 02/06/2013 - 13:52 | 3220530 hooligan2009
hooligan2009's picture

take three blue pills and go for "Hail Jiao AND Li"!

Wed, 02/06/2013 - 13:56 | 3220542 Meat Hammer
Meat Hammer's picture

So does that mean I can have a 12-hour chubby before I need to call a doctor?  A doctor for me and one for Hail Jiao AND Li.

Wed, 02/06/2013 - 14:04 | 3220567 hooligan2009
hooligan2009's picture

heh...just avoid angry wives with scissors and sharp corners

Wed, 02/06/2013 - 13:50 | 3220523 yogibear
yogibear's picture

Student loan debt will impact the 18 to 30 somethings for decades. The Universities are starting to go after and sue the debt drowing borrowers.

Time to give the banksters some boiled rope neckties. Since the DOJ won't prosecute the criminal banksters the people must. When that happens nobody knows.

There is no statue of limitations for an angry rioting crowd. 

Wed, 02/06/2013 - 13:53 | 3220537 hooligan2009
hooligan2009's picture

you knw you are in trouble when the insitutions we all pay for don't prosecute the criminals we specifically hired them to protect us from.  who do they work for anyway?

Wed, 02/06/2013 - 14:00 | 3220550 Falconsixone
Falconsixone's picture

Yep...More accidents and suicides all around

Wed, 02/06/2013 - 14:00 | 3220546 syntaxterror
syntaxterror's picture

Since Lord Bernank created over $100 trillion in money to "lend" to his failed worldwide banking network in 2008, surely he can create $1 quadrillion out of thin air to bail out his ponzi scheme when all of the derivatives and other ponzi mechanisms fail. Debt addicts need Bernank like Heroin addicts need, well, heroin. It's all good. Move along everyone.

Wed, 02/06/2013 - 14:04 | 3220571 topshelfstuff
topshelfstuff's picture

""" much of this deleveraging has been forced via the 5 million foreclosures that have occurred"""

The latest twist

"Nationstar to buy $215B in BofA's mortgage servicing assets for $1.3B"

>>>that = $1,653.85 of Mortgage Debt for each $1.00

Less that a penny on the dollar, actually 3/5 of a Penny 0.06%, or $6 per $1,000,

IOW, they "bought" a Mortgage that nobody could produce a Note or Title on for Example: a $200,000 Mortgage was bought for $1,200, the same one a Modification was near impossible to get. Now there are 2 stocks OCN & NSM

How many times and ways will the Big Boyz get to make a Huge Score on the same intentional fiasco

I  went and took a look at the 2 main stocks I didn't know NSM & OCN via their message boards...found some info:

 

The Street article of 2/25... by twhite113 . Feb 25, 2012 12:36 PM . Permalink

I guess OCN doesn't have a TARP repayment issue as the article originally stated, but it seems this new Home Loan Servicing Solution is an obvious tax-dodge: From their S-1

"We are a newly incorporated Cayman Islands exempted company formed to acquire mortgage servicing assets,

 

 

Re: OCN IF YOU DEAL WITH THEM ONCE -THEY CALL 1000 AGAIN by foreclosure43 . Sep 5, 2011 1:59 PM . Permalink

I wonder with the acquisition of Litton from Goldman Sachs if there's more bad loans on the books for Ocwen?

Wed, 02/06/2013 - 14:06 | 3220577 topshelfstuff
topshelfstuff's picture

Please correct the Math if its wrong, it seems too good to be true...but if the "too good" goes to "The Gang" its probably correct Math

Wed, 02/06/2013 - 14:06 | 3220575 Lin S
Lin S's picture

Debt-based question for the ZH experts:

if you owed $200K on a house appraising at $280K, with a single, fixed-rate mortgage at 3%...

...AND...

Had $150K in cash, would it be wiser to

A) apply that cash to the mortgage, and get within $50K of paying the house off, or...

B) buy precious metals, sit tight, and wait...

..?

 

 

 

Wed, 02/06/2013 - 14:19 | 3220602 IridiumRebel
IridiumRebel's picture

Sell the house NOW.....rent.

Get into PMs now and land after the crash.

Wed, 02/06/2013 - 14:30 | 3220671 Cast Iron Skillet
Cast Iron Skillet's picture

Can you buy silver with SNAP cards? ... would seem to be the way to go.

Wed, 02/06/2013 - 15:23 | 3220778 hooligan2009
hooligan2009's picture

answer is A) then flagellate yourself for living beyond your means, pay off the other 50k a.s.a.p to avoid paying all the other associated bank rip-offs that go with owing abank money (insurance, misc charges etc).

then buy gold with half your free cash flow every month.

you will then be spartacus

Wed, 02/06/2013 - 14:11 | 3220597 edifice
edifice's picture

Aren't there enough ads on ZH? Do you really need them in the middle of an article? Yeesh.

Wed, 02/06/2013 - 14:37 | 3220711 Agent 440
Agent 440's picture

I guess this is when being nice to liberals becomes really important. Or that's what Karl Rove said.

Wed, 02/06/2013 - 14:47 | 3220743 Bunga Bunga
Bunga Bunga's picture

Only a single platinum coin could have saved us from this pain.

Wed, 02/06/2013 - 14:56 | 3220774 QQQBall
QQQBall's picture

Topshelf -

 

Are they buying the debt, or the servicing rights?

 

I paid my house off by doubling up on the payments on a 15-year mortgage. Your yield on the xtra payment is higher than the mortgage rate due to the faster principal reduction. You might make 4% or more on the extra payments.

It starts slow and then you really start to eat into the principal - then it gets to an arae where you just bust them a check on the outstanding balance. You kinda turn the amortization table over on the bank.

Once you get out of debt - life is actually very simple.

 

 

Wed, 02/06/2013 - 15:42 | 3220959 Brixton Guns
Brixton Guns's picture

The problem is not limited to the US, its widespread in ALL CB-controlled countries using fiat currency. MOAR CURRENCY WARS!  ECONOMIGEDDON!!!!!!  WØ؆!  Bring it all down!

http://investmentwatchblog.com/james-rickards-currency-war-has-started-i...

Wed, 02/06/2013 - 20:11 | 3221748 WhiteNight123129
WhiteNight123129's picture

Argentina 2002-2012 has moved from 160% debt to GDP to 41%. It was a slow motion weimar, Fed is attempting a very slow motion weimar.

 

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