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From Over-Borrowing To Over-Saving?
The latest consumer-credit data showed a slowing in the growth of the borrow-to-spend trend that had re-appeared through the holiday shopping period. This deceleration signals the deleveraging of the consumer is back and as the following charts from Morgan Stanley shows once people start saving historically, they have tended to remain saving; and that in the kind of low-/no-growth environment (or more specifically a balance sheet recession) we see a lack of credit demand even as credit availability is high. The momentum of saving and the correct focus on debt minimization as opposed to profit- (or living-standard) maximization will eventually outweigh the ever-increasing need for dollar-debasement money-printing flow to maintain the social market status quo. Add to this deleveraging concern the fact that Europe is seeing bank lending contract absolutely (notably weaker than in the US for now) amid tighter lending conditions and this is just another example of the cloggage in the Fed/ECB's transmission channels in this environment.
Long-term trends in loan/deposit ratios show human's tendency for long-term frugality (as opposed to long-term exuberance as seen in the decades before Japan's crises)...
And as if further evidence of the breakage of Fed transmission channels were needed. In a balance sheet recession, people will tend to minimize debt no matter how easy and cheap credit is available. The Japanese situation has not been allowed yet in the US but once again serves as a reminder of the basic human response to such a wealth shock in cleaning up their balance sheet.
It seems Europe is leading this charge - no matter how hard the ECB tries...
And is it any wonder when lending is uneconomic for European firms...
You can lead a horse to water... but a Japanese or European household just won't drink - are they just a few years ahead of the US in the cycle of reality? Or is the Fed/ECB/BoJ's financial repression (and Treasury's housing plans) enough to keep forcing non-deleveraging?
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Wow no one trusts banksters anymore? Frankly I'm SHOCKED!
I'm SHOCKED, SHOCKED!
http://www.youtube.com/watch?v=T1DEG6BWgp0
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Um someone had better tell Morgan Stanley about the releveraging in OTC derivatives...
NO NO NO
GAP Sales r thru the roof the CONSUMER IS BAKKKKKK!!!
http://www.bloomberg.com/news/2012-04-12/wall-street-falls-in-love-with-...
Fake slewie is never right. He is not trustworthy.
When you borrow in the US it is Dollar Based. In Europe you have to consider the cross-contamination of Euro versus local currency and the likely credit squeeze as banks implode. Because of funding issues Banks have initiated a policy of cutting credit card limits to remove unused capacity and ratcheted up interest rates on existing balances driving more and more households into distress. This is driving Consumption into the ground. Banks are essentially strip-mining the whole economy and in Europe it is much worse because mortgage debt for example is full-recourse and taxes have increased substantially since 2007 reducing net income to servioce existing debt
By the way, did anyone actually see the FED mention this 'QE rumor'? Or was that rumor just from some CNBC anchorette?
It's but a whisper .. we are so indoctrinated to pick up on cues relating to QE that somewhere, someone, somehow a cue was dropped and it went from there ...
As far as I can tell, there is no evidence of any further easing other than what people perceive to suit their reality.
Gold is manipulated upwards. The cabal knows which buttons to push to get the buzz going. Treading very careful here. The stream of bad data was finally taking front and center stage and then all of a sudden gold and silver go up, and the miners follow.
Is gold leading the way or is it THEM pushing gold higher to give the illusion that "gold knows something"?
Dont forget about oil, its up too. Seems now the FED is walking a tightrope across the Grand Canyon....entire thing depending on carefully place 'QE on/off' rumors daily.
What a heap of shit.
Haven't heard any QE rumor yet it is uber bullish today....maybe they are using sign language now and would account for what the market guy was doing with his hand that i saw on faux business.
Ha! Must be. The propanda efforts are blatantly obvious. The narrative is streamlined across the globe. No mention of recession anywhere, just hints of contraction maybe with a sprinkel of fairy dust. They are talking like we all swallowed the lies about "green shoots" followed by "not as bad as could have been" to "recovery" and all that, hook line and sinker!
Oops! Canada's trade deficit is narrowing! Canada is our biggest trade partner and they're reporting a DROP of exports into the US. Huh? How can it be, oh Canada how can it be? Oil is by far the largest export from Canada, about one third of all oil processed in the US comes from up North. That alone accounts for most of their exports to the US. And there's a drop?
The questions are mounting. The narrative doesn't hold much longer. Things are not adding up.
...and Ben's last name ain't Walenda...
No, the Fed didn't say jack nothing. If Ben could print right now - he would. The Fed is on hold for at least a few months regardless to whatever rumors the street makes up to trick the algos. Since retail is out - it's just the primary dealers vs the hedge funds.
Who will blink first?
If fiscal policy effectively discourages legacy saving (through inheritence taxes or similar) then the "excessive savings problem" is a complete canard. My saving today is just spending tomorrow....
SAVE, SAVE, SAVE, for that is the path to freedom. These fraudsters only rule the world because the public give away their wealth buying cheap plastic junk.
Read this and find your way to freedom.
http://www.amazon.com/Simple-Wealth-Mr-Andrew-Costello/dp/1463523017/ref
STACK...STACK...STACK, for that is the path to freedom. :)
save bitchez. save seeds.
This U.S. saving rate, or amount, is a useless metric, as it is an aggregate amount. When Paul Allen or Bill Gates saves another billion dollars, the average saving rate for one million americans goes up $1,000. How useful is that? More than half of America has no significant savings at all.
I used to agree with Mish Shedlock's "new era of thrift" thesis, and I expected to see dozens of shuttered Starbuck's and nail shops. Well, don't I feel like an ass. Joe and Jane Paycheck-to-Paycheck just keep going like the energizer bunny, SBUX hits new highs all the time, and no one gives a Pi - Rat's ass about the savings rate.
I think this is just inertia... There have been numerous posts discussing deleveraging to date being vastly dominated by involuntary deleveraging (i.e. your creditors taking you out back), but I suspect as things pick up, confidence continues to wane, etc., you'll see the voluntary side pick up amongst those with reasonable prospects not to be swept up by the storm. Those who are already dependent on government aid have no incentive to tighten their belts at present... the likelihood of improving socioeconomic status is nil... party like it's 1999. [the interesting interchange is going to be how the belt tighteners deal with the improvident spenders... and it is the former's decision how things proceed].
Of course it is an average. But if Ben were to increase rates, the UST would have to peddle so much harder to pay the interest on all that is being saved MORE on average. Doesn't matter who holds the cash and collects the increased interest!
16+ trillion in debt. Interest at ZERO. And money is leaving the economy to be parked in savings account.
Can you say KABOOM! No way out. No way back. No wiggle room. Confiscation or HYPER INFLATION which is confiscation by way of currency destruction. It worked for over 2 millenia until it doesn't work and we're going into Dark Ages or a World War or whatever else the money changers are cooking up.
What "balance sheet recession"? Business profits have been so high for so long Wall Street gives them money. A DELEVERAGING cycle I would agree with...but not a "balance sheet" problem.
Saving is not an inflationary phenomena-in fact the exact opposite-
**********
President James Bullard of the Federal Reserve Bank of St. Louis pointed out this flaw in Fed policy in a seminal paper, “The Seven Faces of ‘The Peril’” published in 2010.[viii] Bullard posits a theoretical dual equilibrium in inflation expectations. One equilibrium points toward higher inflation and higher interest rates. The other equilibrium points toward deflation and lower interest rates.[ix] The Fed intends that its zero rate policy through 2014 should ignite inflationary expectations.
In fact, everyday Americans discern the Fed’s fear of deflation implicit in a zero rate and prepare for a deflationary outcome by increasing savings and reducing debt – exactly the opposite of the Fed’s desired outcome.
http://www.currencywarsbook.com/2012/03/rickards-testimony-before-senate...
If I make 0% on my savings and the only "reasonably safe" paper investments make ~2%, but my loans are at 6%, then what do I do with my savings? If my cost of living is increasing, but my wages are not and I have no idea when I will get a respite from this vise, then paying down debt will help me weather the storm.
A) Pay down debt completely
B) Relieve stress, quit shitty job
C) Save for retirement, kids, and self-liquidity
D) Smile for the rest of your life
Pretty much what I'm doing. I can't fucking WAIT to be in the life black by Jan, 2013.
I think people don't realize how less of my generation (18-33) are NOT in life black. That's why the income, bargaining rights and job situation is so shitty; TPTB and the corporations that they bankroll know this and take advantage b/c unlike them, for the most part, we actually hold to our committments.
That's why these idiots don't understand why debt forgiveness and bankruptcy must be in the conversation, and why debt collection and debtor's prisons need to be lessened, if not eliminated.
Eventually, people will get it, and *No* one is going to take on massive amounts of debt anymore. Even stupid college kids (which I once was one). Even a drunk fan in the bleacher at Yankee Stadium could figure out the ROI on this debt is just not there.
That scares the *shit* out of TPTB, because they need us to continue to take on debt in order to justify printing (and to gain the interest).
If the consumer decouples.........so does their precious currency.
"Eventually, people will get it..."
Most people never get it!
Tyler, you are great. We have to run down this thing in style and in monetarily controlled fashion until the last colonial subject or formerly thereof has had his haircut served.
The wipe out of western savings is a given. As long as we have an orderly reset , without any undue lesser creditors/debtors or them getting more on a global basis everything will be fine. DISCOUNT HUMAN NATURE.
Wow.
So, people are discovering that they have to save in order to eat?
Can't they just borrow money on Visa to eat?
paypal has now stopped all payments - something going very wrong...
maybe technical glitch but customer service is NOT AUTHORIZED to explain why you cannot use your money on PAYPAL