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Americans Are Deleveraging, But Not Because They Want To

Tyler Durden's picture


As comparisons between US and European debt to GDP levels and the finger-pointing of who is deleveraging more continues, McKinsey notes (in their quarterly Debt and Deleveraging article) that there may be a light at the end of the tunnel for the US as private-sector deleveraging has been rapid since 2008. However, reading on a little, we find that the light at the end of the tunnel may well be the front of the oncoming train of financial distress as some two-thirds of the 4% ($584bn) in US household debt deleveraging is from defaults on home-loans (and other consumer debt)! Of course, with homebuilder stock prices surging (notably rather dramatically relative to lumber or ABS/CMBS), consensus has once again agreed that the bottom in housing is in. McKinsey's initial forecast that the pent-up foreclosures and implicit deleveraging will bring us back to trend by 2013 seems like a pipe-dream and we tend to agree with their more conservative perspective that reversion in household debt will not be to trend but to pre-credit-bubble levels, implying a 22% further reduction (or a couple more trillion dollars of defaults).

The United States: A light at the end of the tunnel

From 1990 to 2008, US private-sector debt rose from 148 percent of GDP to 234 percent (Exhibit 5). Household debt rose by more than half, peaking at 98 percent of GDP in 2008. Debt of nonfinancial corporations rose to 79 percent of GDP, while debt of financial institutions reached 57 percent of GDP.

Since the end of 2008, all categories of US private-sector debt have fallen as a percent of GDP. The reduction by financial institutions has been most striking. By mid-2011 the ratio of financial-sector debt relative to GDP had fallen below where it stood in 2000. In dollar terms, it declined from $8 trillion to $6.1 trillion. Nearly $1 trillion of this decline can be attributed to the collapse of Lehman Brothers, JP Morgan Chase’s purchase of Bear Stearns, and the Bank of America-Merrill Lynch merger. Since 2008, banks also have been funding themselves with more deposits and less debt.

Among US households, debt has fallen by 4 percent in absolute terms, or $584 billion. Some two-thirds of that reduction is from defaults on home loans and other consumer debt. An estimated $254 billion of troubled mortgages remain in the foreclosure pipeline, suggesting the potential for several more percentage points of household debt reduction as these loans are discharged. A majority of defaults reflect financial distress: overextended homeowners who lost jobs or faced medical emergencies and found that they could not afford to keep up with payments. Low-income households are affected most by defaults—in areas with high foreclosure rates, the average annual household income is around $35,000, compared with $55,000 in areas with low foreclosure rates.

Up to 35 percent of US mortgage defaults, it is estimated, are the result of strategic decisions by borrowers to walk away from homes that have negative equity, or those in which the mortgage exceeds the value of the property. This option is more available in the United States than in other countries, because in 11 of the 50 states—including hard-hit Arizona and California—mortgages are nonrecourse loans. This means that lenders cannot pursue other assets or income of borrowers who default. Even in recourse states, US banks historically have rarely pursued nonhousing assets of borrowers who default.

We estimate that US households could face roughly two more years of deleveraging. As noted above, there is no accepted definition of the safe level of household debt, which might serve as a target for deleveraging. One possible goal is for the ratio of household debt relative to disposable income to return to its historic trend. Between 1952 and 2000, this ratio rose steadily—by about 1.5 percent annually—reflecting growing access to mortgages, consumer credit, student loans, and other forms of credit in the United States. After 2000, growth in household borrowing accelerated, and by 2008, growth in the ratio of household debt to income had climbed more than 30 percentage points above the trend line. By the second quarter of 2011, this ratio had fallen by 15 percentage points. At the current rate of deleveraging, it could return to trend by mid-2013 (Exhibit 7).

In the wake of a highly destructive financial crisis, it is reasonable to ask whether a continuous upward trend in household borrowing is sustainable. A more conservative goal for US household deleveraging, then, might be to aim for a return to the ratio of debt relative to income of 2000, before the credit bubble. This would require a reduction of 22 percentage points from the ratio of mid-2011.

Another comparison is with Swedish households in the 1990s, which reduced household debt relative to income by 41 percentage points. By this measure, US households are a bit more than one-third of the way through deleveraging.


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Mon, 01/23/2012 - 10:48 | 2088491 blindfaith
blindfaith's picture

50 years to repair the damage...period

Mon, 01/23/2012 - 11:17 | 2088594 Hi Ho Silver
Hi Ho Silver's picture



I've seen the light at the end of the tunnel and it's a freight train.

Mon, 01/23/2012 - 17:18 | 2090287 Smiley
Smiley's picture

Funny, I thought it was the door to a FEMA crematorium...

Mon, 01/23/2012 - 11:34 | 2088649 Arthor Bearing
Arthor Bearing's picture

That seems about right, but really the damage is more or less permanent, at least until the next watershed socio-historical event. Take East Germany, which experienced an incredible brain drain as the Soviets cut the contry off from the western world and implemented its brand of communism. The East Germans are still defensive about seeming to be second class citizens, they have a reputation for being dumber, and their cities are full of ugly bland soviet buildings which will be there until they crumble. 

Nature's pattern is basically thus: the rich get richer, until their richness poisons them and then another competitor will take the dominant position. Similar to a game of king of the hill. If, like the US will, you get thrown to the bottom of the hill after investing all of your money and energy into fortifying the top, then it will be a long climb before you will ever even see the top again.

Mon, 01/23/2012 - 11:46 | 2088681 blindfaith
blindfaith's picture

Eight dollar a barrel OIL is what brought the USSR to it's knees.  Could no longer afford all the satalites and a big militray too. ( Sorry it was not Reagan, it was $8 oil) that ended the USSR and the wall falling in East Germany there after.

The return of one united  Germany is what made the EU possible, it is what scared the French into cooperating. 

Funny what the catalyst is for any event when you dig into the details.

Mon, 01/23/2012 - 12:08 | 2088852 Sandmann
Sandmann's picture

The return of one united  Germany is what made the EU possible, it is what scared the French into cooperating.

Wrong history book. Germany was divided in 1945 with 4 Powers. George H W Bush was the main ally Kohl had in reuniting Germany - France and Britain opposed. Margaret Thatcher was toppled in November 1990 - the month Kohl put forward his plans for Reunification. Mitterand extracted the Euro as the price for French Agreement ie. the destruction of Deutsche Mark and Bundesbank. Germany used Art 23 of the Constitution the Allies had imposed on Germany in 1949 to unify the two countries rather than Art  146 which says the German People will have a free vote on their own Constitution. Yet it does not happen. Germany is the prisoner of the EU not the other way around., as it was inveigled into the EEC in 1957 (the year it was allowed to re-arm and have an Army at US insistence - but inside NATO) and locked down by France in the Elysee Treaty 1963.

Germany ws occupied until by Allied troops until June 1930 and again from May 1945 and did not regain sovereignty until 1990Oh, and btw blindfaith - the EU was formed in 1957

Mon, 01/23/2012 - 14:13 | 2089503 koperniuk666
koperniuk666's picture

Wrong again. France was NOT at the table. The big three were USA, Britain and Russia.

Mon, 01/23/2012 - 15:13 | 2089827 TruthInSunshine
TruthInSunshine's picture

Stay away from the light!


-- Main Stream Media

Mon, 01/23/2012 - 15:52 | 2089998 blindfaith
blindfaith's picture

sorry, the EURO...letters didn't take in typing.  So getting your nickers in a bunch was for a typo....just imagine if we were writting in a different language as well.

Mon, 01/23/2012 - 11:59 | 2088774 Lucius Corneliu...
Lucius Cornelius Sulla's picture

East Germany is slowly getting better.  Businesses are being attracted by relatively cheap labor, which brings in higher skilled labor to support production.  There is a lot of building going on in Dresden where restaurants in the old town (which has been almost totally rebuilt) are packed with patrons for the dinner rush.  You can definitely tell that things are improving.

Mon, 01/23/2012 - 12:16 | 2088922 Sandmann
Sandmann's picture

Dresden is hardly representative considering how much public money has been invested. When I looked at building factories in the former-GDR the costs were higher for infrastructure than in the West and all the tax breaks required capital-intensity so we weren't going to employ labour, which is expensive and if you wanted to get high productivity you would use lots of capital per worker and employ few workers to keep social charges low. It is cheaper to build labour-intensive plants in Poland or Czechoslovakia than in the former-GDR which is exactly what is happening. The demographics of the former GDR are awful and quoting Dresden or Leipzig is ridiculous when you consider how many Hartz IV Claimants there are in Berlin and how many childen live in poverty - or how many evictions from rented apartments are taking place throughout former-GDR.

People are not looking at Neo-Nazi groups because they revel in abundant prosperity, but simply to kick the political elites in the teeth for rampant corruption and fear of enduring poverty while Merkel funds early retirement in Greece and France as an MP for the poorest state in Germany, Mecklenburg-Vorpommern which has a keen Neo-Nazi following

Mon, 01/23/2012 - 13:20 | 2089098 Lucius Corneliu...
Lucius Cornelius Sulla's picture

HARTZ4 is part of the problem, IMHO.  Consider how many Turks, Poles, Spaniards, Italians, etc... are working in low wage jobs in Germany.   These industries are competing with welfare checks for workers.  The neo-Nazi punks are probably mostly on welfare with nothing better to do.  Make them work for a living and the problem is practically solved.

Mon, 01/23/2012 - 15:32 | 2089924 ATM
ATM's picture

Dresden is doing well because of the Euro. Makes German products relatively cheap - for now. That too will change in short order.

Mon, 01/23/2012 - 11:52 | 2088739 Ruffcut
Ruffcut's picture

Default is my delever tool of choice.

Mon, 01/23/2012 - 14:17 | 2089519 rayduh4life
rayduh4life's picture

works quite well for the Donald, corp amerca etc.

Mon, 01/23/2012 - 12:37 | 2089060 JLee2027
JLee2027's picture

50 years to repair the damage...period

We can repair things in a couple years with a new metal-backed currency, a complete wipe out/reset of all debts and full liquidation of insolvent companies.  

Mon, 01/23/2012 - 14:38 | 2089628 Jerry Maguire
Jerry Maguire's picture

If you do a debt wipte out there won't be any insolvent companies, just as there won't be any insolvent anything. 

Here's how you'd do it though:


And then see if you can figure out how this might help ease the transition:


Mon, 01/23/2012 - 13:19 | 2089248 WhiteNight123129
WhiteNight123129's picture

Now, deleveraging is like bear market, it takes a long time to form a buble, but it is much faster to have it pop, of course courtesy of central banks everytime the market tries to clear, the Fed is there making matters worse by trying to avoid the short term pain, had they not intervened back in Tequlia crisis and in LTCM crisis and in Dot-Com bubble pop and in Housing bubble pop the economy of the US would be much sounder.


Mon, 01/23/2012 - 14:20 | 2089534 xela2200
xela2200's picture

50 --> Keynes

15 --> Austrian

Mon, 01/23/2012 - 10:48 | 2088492 Snakeeyes
Snakeeyes's picture

How about ... NO.

With slow Real GDP growth and slow job creation, household debt increases are not sustainable and the Fed shouldn't be pushing it!

Mon, 01/23/2012 - 10:54 | 2088509 Dr. Richard Head
Dr. Richard Head's picture

The banks sure are trying their asses off.  My current bank, with whom I challenged the mortgage, is offering to refi my home from 6 and 1/8 to 3%, drop five years off the loan, and low closing costs.  No appraisal, even though I stated that I am underwater by 20% and state income.  I explained to them that my wife's last day on her retail job is this Thursday, Disney store is closing (Hooray!!!!!), yet they said everything is fine since it will be a stated income through the Making Homes Affordable Act.  Has anyone learned? 

Mon, 01/23/2012 - 10:58 | 2088527 LawsofPhysics
LawsofPhysics's picture

In a word No.  The banks and all the paper-pushing financial fucknuts (who produce NOTHING of real value) want you and your wife to be happy in your debt slavery.  The financial fucks have been overpaid for years, fuck them.  Wage parity, the world over is coming, damn straight these idiots are panicking, they know that the real value of their labor is ZERO.

Mon, 01/23/2012 - 11:37 | 2088667 Harbanger
Harbanger's picture

World wage parity won't be achieved by raising the bottom but by lowering the top.

Mon, 01/23/2012 - 11:04 | 2088545 The Limerick King
The Limerick King's picture



It sounds like they want you to lie

To make their new paper trail fly

Just don't pay the crooks

Make them mark-down their books

So this whole wretched system will die

Mon, 01/23/2012 - 11:08 | 2088553 blindfaith
blindfaith's picture

If the GREEDY pigs had done this in 2009 thru 2011 for all the mortages then the current mess might not be as bad as it is.  BUT, they believes themselves to be Kings with all that implies.

Their only hope is to become 'reborn' with the same old ideas and hooks.

God, I hope American have learned something and won't forget. 

  Right.  Sure.  Rub a lamp and make a wish.

Mon, 01/23/2012 - 11:27 | 2088619 Harbanger
Harbanger's picture

HAMP, is a federal program of the United States set up in the context of the ongoing subprime mortgage crisis in the debt markets, continuing from 2008.  They created the SMC and now they will "fix" it, by giving more subprime mortgages.

Mon, 01/23/2012 - 11:35 | 2088662 pods
pods's picture

So you basically have them by the balls and that is the best they can do?

I would hold out for a better deal.

If they want stated income and no appraisal, they are merely trying to have an enforceable lien.  

Don't do them any favors!


Mon, 01/23/2012 - 12:05 | 2088843 Dr. Richard Head
Dr. Richard Head's picture

How can I call them out during today's meeting aboutthem not having an enforceable lien?

Mon, 01/23/2012 - 12:20 | 2088949 pods
pods's picture

Have they produced an unbroken chain of title?  That would be the only way for you to know ahead of time if they have standing.  And if MERS is in that chain, it is impaired.

With me, WF was calling and calling asking for me to refi into a fixed rate loan.  Kept telling them I was happy with the ARM (at 2.5% now) and a couple months later I got a note that said they finally registered the note with the county (4 years late).  They tried to make it legal, but I still dont think they have an enforceable lien.  I am staying there and am nowhere near underwater, so it is fine by me.

You can check with the county and see what the last recorded lien is on that property, and I think who it was with.

Not a RE guy though.  Maybe others who have gone further can show you more clues?

With me, if they approach you with a deal that is too good for you, they have nothing.  And wherever MERS was used the most I would say that it is impaired as a general statement.


Mon, 01/23/2012 - 12:44 | 2089112 MachoMan
MachoMan's picture

If you believe that they do not have a valid lien, then you should request documentation to prove it's valid and if they don't cough it up within a certain period of time, file to remove the lien (slander of title, etc.).

What most people don't understand though, is that if I loan you money and you give me a mortgage...  even if it is not perfectly executed...  it will still be good as to you, as mortgagor...  however, if it is not properly executed or filed/perfected, it will be behind any interim filings that are proper...  meaning, you can borrow against the home in the meantime and give someone else a higher priority lien if they will file first...  (presuming some things about your state's recording acts).

I don't think the fact that they filed late has anything to do with whether it is valid...  the whole point is that they're already punished by having their necks on the line, given anyone can come in the meantime and get priority on the collateral.

For quick checking of deeds, you can probably go online to your local assessor's office's website and do a search for your property...  will likely bring up a picture, floorplan w/ dimensions, year built, amount of yearly taxes, and the last ~30 years of filed transfers...  obviously some jurisdictions are a little more high-tech than others...  but you can also call your county clerk and speak to the real estate division (sometimes separate) and ask for a copy of a deed...  many have computerized records now as well...  and you can just go there and within 5 minutes walk out with a copy of the deed.  Remember, being polite will get you a lot further than "demanding your rights."

Mon, 01/23/2012 - 13:18 | 2089242 pods
pods's picture

Thanks Macho, I was thinking of you when I had talked about others above, as you seem to have a wealth of info on the subject.  From what I have read, the use of MERS (not used on mine) was to get around the law of filing every transfer of the deed, was it not? And then when the mortgage was put into the REMIC it had to be named and valid, and the only way that could be backed up was through the register of deeds?

I looked mine up before, my county is pretty good like that.  Has all the stuff you mentioned, lot size, taxes, etc.  Have not checked it lately.  WF did update the records, albeit late.  

My mortgage was a refi, which, correct me if I am wrong, turned the mortgage from a non- recourse loan into a recourse one. So if I were to challenge it, I would have to file bk if I wanted to shed the mortgage anyways.

Like I said before, did not have plans of doing anything, just keeping up on the details, as when I pay off the mortgage, I want to be sure about the lien being able to be removed.


Mon, 01/23/2012 - 14:39 | 2089646 MachoMan
MachoMan's picture

Well, I can't really speculate on what the purpose of MERS was...  given the ambiguity of its success...  but I can say that it was unnecessary for the purpose of avoiding recording fees since many jurisdictions passed model law that allowed assignments without recording.  My guess was MERS was part of the sales pitch/lobbying efforts to get the legislation pushed through (see, like we got a central repository n stuff and it'll all work out and we'll keep track of it all), but I might also be giving our legislators too much credit.  I really, really doubt this conceptual "purpose" for MERS, especially considering the risk should it fall through (as it has)...  save $100/mortgage to eat $100k in other costs?  Again, we seem to fall into the binary trap of deciding whether those in charge are wickedly intelligent or completely fucking retarded.

If your local bank/whomever your initial mortgagee was still holds your mortgage (didn't assign it), then your goose is probably cooked...  if you try and fight that, you'll probably end up like the assholes that claim they don't owe any federal tax because the tax laws weren't properly passed...  best of luck to you, lol.

I can't say anything about the refi-recourse issue...  I practice in a recourse state, so everything is fair game for a deficiency judgment...  It wouldn't make any sense to me for a refi to be a recourse loan if it extinguishes the first, in a non-recourse state...  I could certainly understand a 2nd/HELOC issue being recourse...  but being able to understand policy and necessary checks and balances will only get you the correct guess most of the time, unfortunately... 

Further, practically speaking, when you close on your property, all liens of record will be released/satisfied.  If unknown creditors were popping up from nowhere all the time asserting unrecorded/equitable mortgages on homes, then I might be worried...  but I have never heard of this.  Also, you might have some title insurance or other insurance that would cover you...  and, alternatively, might be able to sue the closing company, etc. for paying the wrong lienholder(s).  Practically speaking, you pay off the note, they quit sending you bills every month...  simple as that.  At some point their right to bring suit on their alleged lien(s) goes away... 

Mon, 01/23/2012 - 20:45 | 2090863 StychoKiller
StychoKiller's picture

I believe that MERS was an attempt to computerize a paperwork system (50 of them!)  that was functioning well, just NOT fast enough for the Banksters to roll Mortgages into CDOs.  Computers do have their place, but sooner or later, one realizes that hammers are not the proper tool for driving in screws.  The Law required wet-ink paperwork, NOT digitized records, but rather than change the Law(s), they did an end-around run.

Tue, 01/24/2012 - 11:26 | 2092425 MachoMan
MachoMan's picture

The traditional court filings aren't around necessarily for the "wet ink" paperwork...  you can get around having the original docs to impose liability... 

The traditional court filings are around to have a local, trusted, neutral, and public repository for land records.  I think these aspects had to be mitigated/obfuscated in order to get the underlying products into the "dark" so to speak...  but, it could be just as simple as MERS being an interjected middle man taking a small cut from every transaction for the pleasure, "we'll do it a few bucks cheaper than the county clerk." 

In the end, I lay much more blame on the moral hazard flowing from jiggered interest rates and regulatory desire to pump mortgages and for TBTF and the GSEs to gobble them down than I do to MERS...  nonetheless, MERS shit the bed and no one has come up with a viable remedy (although, I strongly suspect states are going to "fix" the whole mess in less than two years for many of the properties by way of tax sale...  however, the feds are taking swats at state power every day with things like the protecting tenants at foreclosure act...).

Mon, 01/23/2012 - 12:07 | 2088851 Miss Expectations
Miss Expectations's picture

In the next meeting, having them by the balls might best be demonstrated by tossing the house keys on the desk and telling them you'll be out by Friday.

Mon, 01/23/2012 - 14:03 | 2089449 prodigious_idea
prodigious_idea's picture

Must not be BAC

Mon, 01/23/2012 - 10:52 | 2088510 GeneMarchbanks
GeneMarchbanks's picture

'By this measure, US households are a bit more than one-third of the way through deleveraging.'

I'd say even that is pushing it, especially in states like AZ or CA. The whole deleveraging cycle needs to be more abrupt seeing how monetary policy has distorted half of the actual actions taken by the 'middle' class.

Mon, 01/23/2012 - 10:58 | 2088528 mirac
mirac's picture

...and what if LA and San Fran have massive earthquakes?

Mon, 01/23/2012 - 11:09 | 2088564 blindfaith
blindfaith's picture



got one scarier than that...

What if Americans suddenly wake up and see the truth.


What if...

Mon, 01/23/2012 - 11:14 | 2088580 mirac
mirac's picture

Hmmmmm...some people are waking up but not enough, quickly enough. And what I see scares the sh*t out  of me.

Mon, 01/23/2012 - 11:34 | 2088658 blindfaith
blindfaith's picture

podcast recommendation:

THIS AMERICAN LIFE, their NPR broadcast this weekend about Greece, and the EU crisis is about the best explaination of current status you will find.  If you know someone who just hasn't gotten it yet, this is a good place to start.

Warning, if you think all this world mess is going to end on a good note, avoid the show, because you will clearly hear otherwise.

My only critisism is that they failed to bring up the envolvement of the SQUID>

Mon, 01/23/2012 - 12:07 | 2088857 poor fella
Mon, 01/23/2012 - 12:01 | 2088815 poor fella
poor fella's picture

Rebuilding is actually uber-bullish! Right up there with fighting aliens, remember?

Mon, 01/23/2012 - 20:47 | 2090885 StychoKiller
StychoKiller's picture

Intelligent, alien life should value intelligence, right?  So, how is it that all these so-called "intelligent" bankers/financiers/politicos NEVER get abducted?  I submit that they're less intelligent than they think they are (the bankers/financiers/politicos, that is!).

Mon, 01/23/2012 - 11:18 | 2088516 Mercury
Mercury's picture

...we find that the light at the end of the tunnel may well be the front of the oncoming train of financial distress as some two-thirds of the 4% ($584bn) in US household debt deleveraging is from defaults on home-loans (and other consumer debt).

...which means that, at least in this area, individual de-levering=government levering (socializing bad debt) as the individual's bad debt becomes the bank's bad loan and (likely) eventually the government's (aka everyone's) debt when the bank(s) sink and have to be bailed out.

The thrifty are still the suckers.

Mon, 01/23/2012 - 11:26 | 2088635 blindfaith
blindfaith's picture

"The thrifty are still the suckers."

I don't know about that.  I owe nothing, and I feel very good to be so lucky and blessed.

It was not like I was not tempted, but I learned a long time ago that more was not an answer and way to much to take care of, guard, and store.

In the 1980's & 90's I was a mortgage broker.  You did not borrow a dime if you were not credit worthy.  I had one guy who owned 20 Pizza Huts in Texas and could not get him a home loan because his ratos were off.  Then, in 1999, Mr Phil Graham of (R)Texas let the Dogs out, one Christmas eve, and we are paying for it now.

I had retired by then and could not believe what I was seeing happen to consumer protection and banking and thrift lending.

For all of you, may I suggest that you see Consumer Reports August 2005 where you will find a sever warning about risky bank loans, runaway home prices, and stupid greed.

Mon, 01/23/2012 - 11:47 | 2088709 RichardENixon
RichardENixon's picture

"I don't know about that.  I owe nothing, and I feel very good to be so lucky and blessed." Actually, you owe plenty, and the plan is to stick you with even more, as private debts are transferred to the public ledger, either by direct transfer, or by currency debasement.

Mon, 01/23/2012 - 11:57 | 2088768 ucsbcanuck
ucsbcanuck's picture

Thanks blindfaith - I put up a warning on my FB page about home prices in Canada. it's probably going to be useless because Canadians want the Canadian dream and think they're oh-so-superior to America. 

Mon, 01/23/2012 - 14:28 | 2089571 xela2200
xela2200's picture

Funny, my experience with Canadians is not an issue of feeling superior but one of identity. They do not like been confused with Americans or called "buddy."

Tue, 01/24/2012 - 14:57 | 2093387 ucsbcanuck
ucsbcanuck's picture

Talk to Maritimers - if they don't know someone they call them buddy

Tue, 01/24/2012 - 14:59 | 2093399 ucsbcanuck
ucsbcanuck's picture

And since 2008, when Canada got through the GFC with our banks relatively unscathed - it's been a superiority complex. 

Little do they know that the same time bombs that went off in the US are ticking in Canada. Except that the CMHC is on the hook.

Mon, 01/23/2012 - 12:03 | 2088823 Mercury
Mercury's picture

If your taxes and the purchasing power of you dollars stay flat you'll be right but I don't think that will be the case in the next few years...

Mon, 01/23/2012 - 14:31 | 2089594 xela2200
xela2200's picture

Well, you are ahead of me because I am havig a hard time what is going to happen in the next few years. Not even an educated guess more of a gamble at this time.

Mon, 01/23/2012 - 11:42 | 2088687 ucsbcanuck
ucsbcanuck's picture

"The thrifty are still the suckers."

On that topic - has anyone noticed the amount of anti-savings and anti-thrift propaganda lately? Whenever there is talk of China's massive reserves, it is usually negative.

Mon, 01/23/2012 - 12:58 | 2089165 Mercury
Mercury's picture

Imagine how they feel about buying gold and hiding it.

Mon, 01/23/2012 - 14:27 | 2089578 rayduh4life
rayduh4life's picture

"The thrifty are still the suckers."

Isn't that the truth!

Mon, 01/23/2012 - 22:09 | 2091147 Dingleberry
Dingleberry's picture

The thrifty were suckers when we could easily declare bankruptcy.  You essentially got paid every 7 years for racking up debt. Now, the thrifty and non-thrifty are both screwed, but the latter more than the former.  

"The debtor is a slave to the lender"


Mon, 01/23/2012 - 10:59 | 2088524 Dr. Engali
Dr. Engali's picture

The sad thing is people can't wait to get back to the borrowing trough. I know a lot of people who have been in trouble ,and are trying (some boasting that they can ) to lever up again. No lessons learned.

Mon, 01/23/2012 - 11:14 | 2088582 blindfaith
blindfaith's picture

sadly, I know several just like that.  They think they have learned keeping one finger on the back of the chair as they go round and round this time around.  They are sooooooo much smarter now.

Mon, 01/23/2012 - 10:56 | 2088525 rsnoble
rsnoble's picture

Wouldn't there have to be some sort of improving employment picture to support a new glorious housing market we're told is coming?  Sounds like the moneymakers are busy shoveling on the $ and duping us into another "it will get better" episode while they are trashing out everything that is left for their own sorry asses.

Mon, 01/23/2012 - 10:59 | 2088532 rsnoble
rsnoble's picture

As for the stockmarket, pretty apparent why the keep that pumped up at all costs.  "They" have an agenda and need lofty stock prices to confirm all the crap that they say is happening and will happen.  How long they can hold all this together im not sure. It's already gone on much longer than I thought.  But if there's unlimited digital zeros, and institutions aren't allowed to sell, then ?  Nuclear war could probably slow things down.

Mon, 01/23/2012 - 10:59 | 2088534 ebailey5
ebailey5's picture

Forced deleveraging is like cutting off a leg to reduce weight (dieting)

Mon, 01/23/2012 - 11:02 | 2088536 blindfaith
blindfaith's picture

bla. bla, bla....

Incomes are dropping to compete with the new world order.

Technology replacing workers in every field of employment (except Congress).

Who wants to buy when there are basicall only two ways for states to raise money, real estate and sales taxes.

One income households is the new norm. Multi generations under one roof just like the 'third world'.

Staggering personal wealth loss in the trillions will take generations to rebuild if ever.

Student debt is not repayable.

Disengenous leaders and business grow daily.

Gosh...ain't we got fun.  I need a new app...hear me! I NEED A NEW APP!!  NOW.

World resources are at war for control and monopoly ownership.

Patents and copywrites will criple innovation with infinate renewals (think dizney, zapple, etc. for example).

China, Brazil, India. etc are not ready for prime time and will

Mon, 01/23/2012 - 14:42 | 2089668 xela2200
xela2200's picture

Actually, my real estate taxes are down with the price of my property (sniff), no sales tax increase, and no personal or corporate income tax. I have to admit that some states have really stepped up to the plate (not California for sure). Some descent governors out there. The competition for new businesses is also is doing wonders. Just look how many businesses are leaving California to Texas. Some others states, of course, are going down hard in my opinion.

I am just saying that when it comes down to states, it is a different story in each case. I am actually finding some people feeling a stronger loyalty or sense of identity with their states than to the Federal Government.

Mon, 01/23/2012 - 11:07 | 2088540 Boston
Boston's picture

The upward "trend" in household debt as a % of income CANNOT be a trend. If it were, then there would be NO limit, which is NOT possible. It's not sustainable!

This is a very shocking error from McKinsey.

PS. Go back to the period before 1955, and you'd see a DECLINING trend.....

Mon, 01/23/2012 - 11:26 | 2088577 ucsbcanuck
ucsbcanuck's picture

That was my first reaction when I saw that graph - WTF? How can household debt continue to increase as a % of income? It's unsustainable. I mean debt as 100% of income? Geez Louise! How does this even work?

Mon, 01/23/2012 - 11:34 | 2088657 dwdollar
dwdollar's picture

We have a bubble within a bubble.

Mon, 01/23/2012 - 11:44 | 2088699 ucsbcanuck
ucsbcanuck's picture

Which will end with all of us asking whether we're still in a bubble, Inception-style.

Mon, 01/23/2012 - 13:33 | 2089326 game theory
game theory's picture

Exactly...this trend is not only NOT sustainable...but it is so obviously problematic that you need to ask why the economists at the Fed didn't pull the alarms long ago.   Why did the debt load reach as high a level as it did?  Inflation expectations (like assets and wages) were the core problem. Now the Fed is busy trying to create inflation to fix everything.  The Fed tried asking for mortgage traction on I am waiting for dollars to drop from the sky (tax rebate or a helicopter) as a means to increase income.  Inflation is a very scary takes years to arrive...but it has a way of getting out of control *fast*. 


Mon, 01/23/2012 - 11:07 | 2088551 OutLookingIn
OutLookingIn's picture

Recourse versus nonrecourse.

The now big gorilla in the room is student loans, which will follow the borrower to their graves. Or to the tax payer as they are government backed.

All debt will be paid. No getting away from it. It will be paid with dollars worth pennies, or with pennies worth dollars.

It will be paid - one way or the other. It just does not disapear as if by maj!

Mnay more years of pain to come.

Mon, 01/23/2012 - 11:52 | 2088674 Sandmann
Sandmann's picture

Mortgage Debt in the UK is FULL RECOURSE and the rented sector is not as developed as in the US. Even back in the 1980s in the Oil Patch people mailed back their keys to the S&Ls and waited for the Resolution Trust Corporation to be formed.......but that simply begs the question, why go through it all over again 20 years later ? Are US policymakers really so stupid ?

The fact that Banks are manufacturing fake loans documentation to foreclose on houses for which they do not hold mortgages is a sign of the corruption in US legal systems

The Commercial Real Estate problem is even bigger ......yet with 20% UK mortgages under water Banks have no option but forbearance since the Mortgage Offerings are too few and too restrictive to clear the housing inventory after banking consolidation and fringe lenders from the USA - GMAC and other lax operators who were basically looking for securitisation raw material. At the peak of the UK boom one bank - Northern Rock was originating >50% mortgages to securitise through its offshore arm Granite. Now that is bust and nationalised, the British Government has a unit UK Asset Resolution Ltd holding 800,000 customer files and £77 billion in mortgages.

McKinsey has produced yet another glib report failing to acknowledge that the USA has far cheaper land than the UK and house values in Detroit can diverge from those in Boston or Chicago to a far greater extent than house prices in London and Birmingham simply because of population density. To match England's population density the US would need an ADDITIONAL 2 Billion People. 

The UK is not the US and has a completely different real estate market and legal structure to property finance, it lacks the Texas Homestead Law, and the US does not have Local GOvernment with a statutory obligation to house the homeless which simply turns a bank problem into a political problem. One interesting feature is that UK mortgage rates never entered double-digits until the 1970s de-regulation of credit markets in 1972 and the housing market was rock-solid; which of course is why Greenspan and Brown used it purposely after 2002 and the Dot-Com Bust to bail out bank profits.



Mon, 01/23/2012 - 11:11 | 2088559 OutLookingIn
OutLookingIn's picture

Sorry. Re-post.

Mon, 01/23/2012 - 11:22 | 2088606 jayman21
jayman21's picture

Sorry, I stopped reading when I saw McKinsey.  It is fuzzy math, but I think I can work the numbers.  McKinsey=MainConsulting(Old One from the 80s)=NeoConAssholes=IMF=Worldbank=TPTB=MSM.  This is enough for one day.  Taking the tin foil hat off now.  Ahhh feel better



McKinsey=MainConsulting(Old One from the 80s)=NeoConAssholes=IMF=Worldbank=TPTB=MSM=PetroDollars

Mon, 01/23/2012 - 12:26 | 2088989 Miss Expectations
Miss Expectations's picture

Happy to pile on here.  The McKinsey consultants who were invited into one of my former places of employment were the most clueless bunch of MBAs I've ever seen assembled in one conference room.  We were not allowed to skip their presentations, so we ate the donuts and slept through the slide shows.  We made them uncomfortable as we never asked questions, in fact we conspired to never speak in their presence.

Mon, 01/23/2012 - 11:22 | 2088611 falak pema
falak pema's picture

Americans are deleveraging, just like the American Oligarchs deleverage assets from official balance sheets onto System D balance sheets, through multinational transfer pricing or profit making via Cayman HFs, off fiscal capture territory; as they deleverage corporate losses onto national balance sheets. Its called parallel plays of regulatory and deregulatory capture. Symmetry is what makes the Oligarchy world so special. And Rolex perpetual precision. Pity that it could all blow up for cause of those grains of sand called "immoderate greed" and "hubris". 

Mon, 01/23/2012 - 11:24 | 2088620 Theosebes Goodfellow
Theosebes Goodfellow's picture

~"As noted above, there is no accepted definition of the safe level of household debt, which might serve as a target for deleveraging."~

Really? How about zero as a "safe level of household debt"?

Mon, 01/23/2012 - 11:26 | 2088626 yogibear
yogibear's picture

This may be true for the people in the Hamptons, with socialing losses and privatizing profits, but not for those in the 99%.

Wages have been trending down, due to global wage arbitraion, China's Foxconn pays it's people $17/day. The US has a long way to go before wages equalize. Companies, like Comcast, Sprint and At&T have bee slowly raising their prices. Local taxes have been increasing. The Squeeze on the 99% is increasing.

Mon, 01/23/2012 - 11:29 | 2088641 eddiebe
eddiebe's picture

Is that de-leveraging in the financial market marked to market or marked to model?

Mon, 01/23/2012 - 11:29 | 2088643 Alex Kintner
Alex Kintner's picture

Tyler left out a chart showing the rise in share of US debt per taxpayer as National debt increases. Which I venture to say far out weights personal delveraging. Jus sayin...

Mon, 01/23/2012 - 11:30 | 2088648 847328_3527
847328_3527's picture

The Feds laugh while Americans deleverage:


The Correlation of Laughter at FOMC Meetings January 12, 2012 at 9:09 PM

Five years on, the powers that be have just released the transcripts of the Fed's FOMC (Federal Open Market Committee) meetings from 2006.  Putting hindsight economic analysis aside, you quickly realize more than anything else: the committee is full of burgeoning comedians!

Commentators have already highlighted the "humor" of the FOMC meetings (WaPo, dealbreaker), but it is really over the top at times.  There are periods where Greenspan seems only capable of speaking in witty quips.  On that count, he was clearly at the top of his game at the top of the market.

Mon, 01/23/2012 - 11:51 | 2088730 Savonarola
Savonarola's picture

Motto of the 1%:   A place for everyone and everyone in their place.

Motto of the 99%:  A place for everyone and everything in the place.

Mon, 01/23/2012 - 11:58 | 2088791 markar
markar's picture

Watch for new govt incentives to allow foreigners to buy up the distressed housing stock in this country. Home ownership for(younger) Americans is dead for a generation, despite the ridiculously low interest rates.

Mon, 01/23/2012 - 12:17 | 2088935 Sandmann
Sandmann's picture

Maybe the Chinese will buy it and add it to their stocks of surplus housing ?

Mon, 01/23/2012 - 12:20 | 2088945 steve from virginia
steve from virginia's picture


Hilarious! The analyst believe people will descend to 90% debt level. Why 90%? More wishful thinking.

It's more likely that debt levels will decline to 20% or less. Deflationary logic holds that 'Credit is poison' which MAKES credit into poison.

That this is taking place can be seen in Detroit ... and Phoenix, Las Vegas, Florida, Baltimore, central California suburbs, in suburbs all across the country. Once credit shrinks there is no bringing it back.

 In 1975 a good house could be had for less than $50k. As it is now in many places and so shall it be everywhere, in the future.

Mon, 01/23/2012 - 13:15 | 2089233 ozziindaus
ozziindaus's picture

Once credit shrinks there is no bringing it back.

and thats why we are in a deflationary period. More people are paying down debt, refusing it and of course, defaulting.

Mon, 01/23/2012 - 13:20 | 2089257 onebir
onebir's picture

"In 1975 a good house could be had for less than $50k. As it is now in many places and so shall it be everywhere, in the future."

You think the Fed will allow that?

More seriously, there's no reason why the household debt/income *ratio* should be trended. It was basically stable from 60-85, and allowing it to trend up was one of the things that caused the mess...

Mon, 01/23/2012 - 12:51 | 2089132 ucsbcanuck
ucsbcanuck's picture

In fact, taking a look at Exhibit 2 gives one food for thought.

Note how from 2000 - 2008 households went on a barn-burning binge of epic proportions. This coincides with the 2002 - 2007 bull market.

So basically - in some form or other - since 2000:

- The market has been levitating on hopium

- The economy was built on pillars of sand

Keynes was right - the market can stay irrational longer than you can stay solvent.


Mon, 01/23/2012 - 12:53 | 2089143 Madcow
Madcow's picture

when baby boomers sell their stocks to make their mortgage payment and buy groceries ... is that "de-leveraging" ??

Mon, 01/23/2012 - 13:11 | 2089215 ozziindaus
ozziindaus's picture

A default is and always has been a form of deleveraging. Why is it such a surprise now? It’s common for corporations to defaulting on debt as part of their restructuring. They really don't want to  ; )

Mon, 01/23/2012 - 13:22 | 2089271 847328_3527
847328_3527's picture
Baby boomers and the 4 million seriously delinquent loans – 10,000 Americans turn 65 years of age each day and this trend will go on for nearly two decades. Housing starts and completions reach record low in 2011.


The prospects of a housing recovery in 2012 seem unlikely as continued weak momentum carries over from the second half of 2011.  Globally, housing bubbles are entering into peak mania phases as hot money seeks a safe harbor for the short-term.  Back here in the United States, we can look at the cold hard reality that 2011 saw a record low number of single family completions.


Lots more deleveraging to go.

Mon, 01/23/2012 - 14:13 | 2089501 roadhazard
roadhazard's picture

I owe no one and the beauty of that is my exta income goes for bullets & beans.

Mon, 01/23/2012 - 14:30 | 2089587 Just Observing
Just Observing's picture

Yep...owe no one either.....bullets, beans, gold, silver, keep improving the garden with compost, put in enough solar power to sustain, gravity fed spring, and two years worth of firewood on hand all the time. 

Let the deleveraging rip.

Mon, 01/23/2012 - 14:26 | 2089564 Just Observing
Just Observing's picture

You could get a GREAT house in 1975 for 50k.  My first house, built in 1976, cost 20k.

Mon, 01/23/2012 - 16:53 | 2090224 Magellan
Magellan's picture

Looking at leverage levels in absolute terms is quite meaningless. Disposable income is relevant - but since most household debts are mortgages, one has to look at the value of the underlying collateral. The value of the homes fall - and the leverage stays the same.... Household leverage multiples have Increased markedly since 2008.

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