The US Deleveraging Has Resumed

Tyler Durden's picture




 

Last quarter, upon the release of the Q4 2011 Z.1 (Flow of Funds) report, we penned "The US Deleveraging Is Now Over", because, well, it was: all the categories tracked by the Fed's Credit Market Debt Outstanding series posted a sequential increase over Q3.

Most importantly, there was an increase in the net debt held by the US Household Sector: this was only the first time after 14 quarters of declines, that US consumers had levered up. Sure enough, many took this as an indication that the economy was now fixed, and that with everyone levering up, inflation was sure to follow, and the virtuous cycle was back (also leading to the scare when the yield on the 10 year spiked, however briefly, to the mid 2% range).

As it turns out, the entire "releveraging" was merely a one time artifact of consumers relying more than ever on credit to purchase items in the holiday season. Because as the just released update from the Fed indicates, deleveraging is back with a vengeance. In Q1 the Household sector saw its total debt decline by $81 billion, or the most since Q1 of 2011, to $12.85 trillion. That this happened even as overall net worth supposedly soared by $2.8 trillion as noted in the previous article is truly disturbing, and confirms what everyone knows: not only is nothing fixed in the US economy, but the deleveraging wave continues on its merry way.

Source: Z.1, table L.1

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Thu, 06/07/2012 - 14:14 | 2504724 LawsofPhysics
LawsofPhysics's picture

No shit.  As far as I can tell, only CBs and governments have been "leveraging".

Thu, 06/07/2012 - 14:17 | 2504742 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

Ugh.  Too true Laws.  Only ONE sector is doing great, that is .gov.

Ugh, ugh, ugh.

Thu, 06/07/2012 - 14:21 | 2504753 redpill
redpill's picture

Is buying groceries on credit because you don't have the cash considered "leveraging" these days?

Thu, 06/07/2012 - 14:26 | 2504762 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1, LOL...

Actually I buy everything on credit (except booze...), but we pay it off 100% every month.  And I am accumulating FIAT$ as well as gold...

Thu, 06/07/2012 - 14:31 | 2504790 Sweet Chicken
Sweet Chicken's picture

Same here, except we only pay the minimum with a planned default in the very near future. Just buying physical and using this time to hedge for the worst.

Thu, 06/07/2012 - 15:02 | 2504940 The Swedish Chef
The Swedish Chef's picture

Planned default? Like breaking an agreement you willfully signed? Your no better than them...

Thu, 06/07/2012 - 15:32 | 2505053 Sweet Chicken
Sweet Chicken's picture

No it's not quite like that. I can either file for a chapter 7 or I can stop paying on my card until the bank is willing to negotiate a paydown. I have exhausted all other options. If you would like I can email you the full explanation how this became my resolution?! But telling me I'm no better than them is simply untrue. I have never missed a payment. I have never been late on a payment. As I said before if you want to hear the whole story I can email it to you but otherwise I really don't feel too comfortable sharing it with everyone.

 

Sorry no offense everyone. :)

 

 

Thu, 06/07/2012 - 15:43 | 2505087 Kayman
Kayman's picture

Sweet Chicken

I talked to a 74 year old who was trickfucked into signing onto a government liability in his personal name. They are now going after his home. The legal costs to fight this wrong are huge and he probably wouldn't live long enough to see it thru a trial.

Like you, I cannot share the details, but suffice it to say, the government employees will continue to collect their paychecks even after they bankrupt this guy.

Governments, government union employees, criminal bankers and crony capitalists- all are Teflon coated.

 

Thu, 06/07/2012 - 15:58 | 2505171 Sweet Chicken
Sweet Chicken's picture

Wow it's fucking sickening the depth these bastards will sink to.

 

It's not like I'm really embarassed or anything with my situation, I just don't think everyone wants to hear about my problems. Basically I'm a single provider for a family of 5 who makes less than 60K a year before taxes and is recovering from the loss of a job in 06'. My wife and I BOTH worked back then and we both were laid off within three days of each other. At that time I had already taken equity out of my house to finish the attic for baby #2 and then the bank closed the line before I had used the money to pay off the debt. Flash forward to now and I refinanced to try and take the funds to pay off the debt and roll everything into my mortgage payments but again the housing market was crashing and regardless of the 35K I had put into the house, I couldn't pull any monies out and could only lower the interest payments. We don't go out to eat. We grow as much vegetables and fruit as we can but it only suppliments so much. I am 38 years old and have always purchased old beat up cars. We haven't bought gifts for one another in almost six years now including for our ten year anniversary. For the past three years I have only been able to pay the minimum on the card and have spent nearly 12K on interest alone that could have paid down my 19K in debt already to a sustainable level.

I am out of options and I choose to feed my family and pay my mortgage before I pay the CC any further. They can either agree to write down my debt to an amount I can pay off (don't have a clue how I'm even going to do that but will do what it takes to be honest) or I have to file chapter 7.

 

Lights Out Gorilla Radio

Turn That Shit Up!

Thu, 06/07/2012 - 16:39 | 2505311 AustriAnnie
AustriAnnie's picture

The entire point of contracts, are that they outline the terms for being IN the contract.  There are also terms for breaking the contract (default).  

While I think racking up debt with no intention to pay it off is deplorable, I also think that people do have a right to assess their situation and decide to default if they feel it is in their best interest.  Anything other than that would be to support debtor's prison.  An individuals has a right to choose to walk away from a contract.  He will reap the consequences of bad credit score, damage to reputation with personal lender's perhaps, and the possiblity of collections agencies going after future income if legally allowed.

Sweet Chicken has a right to default, to defer payments, or whatever he chooses.  His credit score will suffer for a long time (as it should, he took out the debt, and didn't pay it back, therefore his reputation as a borrower is damaged).  But if he chooses to put the money to the mortgage to keep a roof over his family's head, that is not an unreasonable decision.  Chapter 7 will also result in consequences.  

We all make good and bad choices/mistakes (like taking on debt without planning for getting laid off, etc, because we can only estimate the probabilities of risk of these things happening).   Passing judgement on Sweet Chicken because a low-probability event occurred (i.e. him and his wife getting laid off at once) is a little out of line.  People can only be prepared to a certain extent for shit to happen.  

However, CONTINUING to use the credit card while planning to default is different from holding a previous balance and being unable to pay it off.  The continuing use of credit with no plan to pay back is not living within your means, and amounts to stealing (taking something with no intent to pay).

There is a difference, IMO.  That being said, the moral hazard that exists today makes it hard for someone to choose to do the right thing when everyone around him is being rewarded for doing wrong.  I guess it comes down to doing what will allow you to sleep well at night.

Thu, 06/07/2012 - 17:21 | 2505409 Sweet Chicken
Sweet Chicken's picture

Thanks Annie.

 

Let me take this moment to clarify. What charge monthly gets paid off completely. Meaning I use the card to make grocery purchases and gas purchases as well as my utilities, in order to take advantage of the points. All of this is paid off in full every month. Beyond that I only pay the minimum monthly amount. This mean if I charge 1000 on my card along in utilities I will pay the credit card roughly 1450 that month depending. I am merely taking advantage of the credit while I have it and am in no way stealing money that I have no intention of repaying. I have paid back the money I have spent, it is the interest that has enslaved me. I simply do not have enough income to knock down the debt in less than 10-15years at this rate. I am out of options.

Hell just coming to grips with the inevitable default has been hard on me but I have come to grips with it and look forward to the economic freedom once the debt is gone.

 

Fri, 06/08/2012 - 22:10 | 2509469 nyquil762
nyquil762's picture

Do what you need to do to protect your family against these sceaming banks! Good luck and keep grinding. nyquil762

Thu, 06/07/2012 - 22:24 | 2506024 Newsboy
Newsboy's picture

Family first.

It's all a calculated business risk for the card companies, and they are doing fine.

Good on ya, growin' the garden, too.

Thu, 06/07/2012 - 15:53 | 2505143 Blackfriday
Blackfriday's picture

I'll do it for you since you are too polite.

 

Fuck off, Swedish Chef.  Judgemental dumbass.

Thu, 06/07/2012 - 16:09 | 2505212 Sweet Chicken
Sweet Chicken's picture

Trust me I'm really not. I'm an italian from the south side of Chicago, I usually have a problem keeping my mouth shut.

 

The thing is I've seen plenty of intelligent posts from Swedish Cheh so I understand the sentiment. I've simply had a rough time lately with people I used to think are like minded but the scary thing is everyday I am finding the people who think the way I do frequent this site. I am watching myself become alien to those I care about around me. I am speaking of my awakening from the MSM sleep of course. This has been a process going on since 2000 which can be most depressing. Alcohol and the finest bud around is what has kept me from reenacting Falling Down with Michael Douglas.

 

I AM NOT ECONOMICALLY VIABLE

Thu, 06/07/2012 - 15:53 | 2505145 global
global's picture

Breaking a contract has consequences, if you're willing to take those consequences then breaking the contract isn't a problem.  What would be a bigger problem would be entering into a contract then when it goes against you expecting taxpayers to bail you out.  Somehow you are confusing a finacial contract with a moral obligation.

Thu, 06/07/2012 - 16:49 | 2505343 AustriAnnie
AustriAnnie's picture

Agreed.

One is shaking hands, then realizing this deal does not work or that you cannot meet the terms agreed to.  You walk away.  Business partner may not do business with you again.  But voluntary association and voluntary market transactions imply an individual's right to walk away from a deal.    (or: shaking hands, taking the goods, and knowing you expect the man on the other side of the trade to take the loss.  that is just bad business and might get you sued in court for breach of contract.)  Courts exist to settle disputes such as these. This is in accordance with the rule of law - Constitutional.

The other is shaking hands, walking away, then lobbying your government to pay off your tab.  This use of taxpayer funds would be unconstitutional.  That is, if the Constitution meant a damned thing anymore.  But thats my point.

Fri, 06/08/2012 - 22:16 | 2509474 nyquil762
nyquil762's picture

If we could all be paragons of virtue like the great "swedish chef". In fact, you probably are them. nyquil762

Thu, 06/07/2012 - 15:06 | 2504956 tarsubil
tarsubil's picture

I'm doing the exact same thing.

But I have the feeling that these numbers are a matter of the tide going out before the tsunami comes in. Sooner or later, people will have paid off all their high interest debt and they'll start taking advantage of interest rates below inflation while inflation is going up. Final phase of the ponzi.

Thu, 06/07/2012 - 16:09 | 2505210 azzhatter
azzhatter's picture

I charge everything, pay the minimum and use my salary to buy gold and silver physical. I have a planned default to BOA in my future. They can take a suck.

Thu, 06/07/2012 - 14:45 | 2504841 Salt
Salt's picture

It'll deleverage when the bill cannot be paid. For many that will be end game.

Thu, 06/07/2012 - 15:33 | 2505056 aerojet
aerojet's picture

For awhile I was doing all right speculating on the value of the gas in the tank of my car--each day it got more and more valuable, until I went for a drive.

Thu, 06/07/2012 - 15:00 | 2504931 gjp
gjp's picture

And yet US consumer stocks are the only game in town.  What a fucking farce.  There will be a real deleveraging when it finally comes apart, in the meantime, by credit, government transfers, or some other funny money mechanism, most American consumers are still happily living well beyond their means.

Thu, 06/07/2012 - 14:17 | 2504738 nobusiness
nobusiness's picture

Shocker.  Go deeper in debt for summer vacation and holiday shopping and then need to pay it back in the first and second quarter.  Rinse repeat.

Thu, 06/07/2012 - 14:20 | 2504741 robertocarlos
robertocarlos's picture

I'm almost out of debt. My fellow Canucks have been going whole hog.

Thu, 06/07/2012 - 14:43 | 2504836 Joe Davola
Joe Davola's picture

What do they call Canadian Bacon in Canada?

Thu, 06/07/2012 - 14:59 | 2504927 robertocarlos
robertocarlos's picture

Back bacon.

Thu, 06/07/2012 - 14:19 | 2504745 Cognitive Dissonance
Cognitive Dissonance's picture

Wasn't it just a few weeks ago, maybe a month on the outside, when all was right with the world and the recovery was well on its way to peak intensity?

It's truly amazing how quickly "they" can change the meme to suit their needs/plans/goals.

Thu, 06/07/2012 - 14:20 | 2504752 mrktwtch2
mrktwtch2's picture

one yr ago fater my divorce i had 43k on credit cards and have knoced it down to 19k..hopefully in 9 more months i will have it all paid off..

Thu, 06/07/2012 - 23:18 | 2506135 Knobbius
Knobbius's picture

Good for you.  Not being a debt slave is one of life's great feelings.  We have our mortgage (@3.75%), and that's the only debt we have.  I remember the feeling when I crushed the last of my student debt, and paid off my wife's car.  Awesome....

 

Thu, 06/07/2012 - 14:22 | 2504758 Dr. Richard Head
Dr. Richard Head's picture

Deleveraging is dangerous to the banks for if all debt created was paid off there would be no currency left.  Currency is debt.

Thu, 06/07/2012 - 14:29 | 2504783 jimmyjames
jimmyjames's picture

if all debt created was paid off there would be no currency left.

************

True and there's only one thing that could stand behind increasing the cash supply without collapsing the currency-

It's only a matter of how many pieces of paper will be needed-

Thu, 06/07/2012 - 15:00 | 2504930 Yossarian
Yossarian's picture

Off the top of my head:  All the debt cannot be paid back with present cashflows.  In order to pay the debt assets must be sold until a balance is achieved whereby cash flows can service debt plus amortization.  The point at which that occurs will see assets priced much cheaper in cash terms.  For bonds being liquidiated to service debt that means higher yields, sans money printing.  Aren't markets/govts/banks/households essentially wrestling with this reality right now?

Thu, 06/07/2012 - 15:27 | 2505032 Kayman
Kayman's picture

Yossarian

Read the previous article on Net Worth. You can pay your debt off with Net Worth, can't you ?

sarc/ stuck on TDC

Thu, 06/07/2012 - 14:23 | 2504759 Dr. Engali
Dr. Engali's picture

Look at all that "austerity" going on in the federal government. Times surely are tough for them.

Thu, 06/07/2012 - 14:31 | 2504791 Bay of Pigs
Bay of Pigs's picture

you have to admit the brainwashing has been pretty effective lately

Thu, 06/07/2012 - 14:24 | 2504765 robertocarlos
robertocarlos's picture

Deleveraging is the same as saving, which is a good thing. We need more economic terrorists saving their money.

Thu, 06/07/2012 - 14:26 | 2504771 101 years and c...
101 years and counting's picture

if debt is wealth, this means the poor just got.........poorer.

in the prior post about household wealth....the rich got...richer via money printing.

sigh.  fuck ben. 

Thu, 06/07/2012 - 15:29 | 2505041 Kayman
Kayman's picture

Money printing is front running for Ben's buddies.  Stepping on the little people makes such a nice squishy sound.

Thu, 06/07/2012 - 14:26 | 2504773 reader2010
reader2010's picture

It's long loooooooooooooog way home.

Thu, 06/07/2012 - 16:15 | 2505240 RichardP
RichardP's picture

Long, dark road.  Citizen lamenting the demise of his relationship with his country:

http://www.youtube.com/watch?v=2-2NYC0Rnfw

Ode to a beautiful black swan:

http://www.youtube.com/watch?v=_0LTRPMpOVM&feature=related

Thu, 06/07/2012 - 14:29 | 2504781 junkyardjack
junkyardjack's picture

Well CNBC finally got retail to buy the dip so now that the professionals are out the market can drop

Thu, 06/07/2012 - 14:31 | 2504786 booboo
booboo's picture

I love the smell of burnt debt in the morning. Other then that the plump little Jewish American Princess tugging at her bra at the top right corner of the page keeps staring at my wallet.

Thu, 06/07/2012 - 14:34 | 2504801 Bunga Bunga
Bunga Bunga's picture

Calm down, nothing to worry about. Even if people think they are free of debt the amount government borrowed will show up on their tax bill. The great leveraging continues either way.

Thu, 06/07/2012 - 14:37 | 2504812 RobotTrader
RobotTrader's picture

I bet Bernanke eventually cranks up inflation into the 4% or 5% range.

 

When that occurs, then anybody fully leveraged in real estate or stocks will make out big.

All the other "suckers" paying down debt will be left behind.

Thu, 06/07/2012 - 14:45 | 2504839 Bunga Bunga
Bunga Bunga's picture

If Bernanke is the master of the universe and can solve all problems easily by creating inflation at any rate and anytime he wants, why he has not done it before?

You are an economic brain dead.

 

 

 

 

 

 

Thu, 06/07/2012 - 14:51 | 2504878 robertocarlos
robertocarlos's picture

Iether BB has mastered pushing on a string or he has another trick up his sleeve. Probably levitation with a chopper followed by flying turkeys or bundles of notes.

Thu, 06/07/2012 - 15:25 | 2505025 RobD
RobD's picture

As god as my witness, I thought turkeys could fly

 

BB

 

http://www.youtube.com/watch?v=lf3mgmEdfwg

Thu, 06/07/2012 - 15:37 | 2505070 eclectic syncretist
eclectic syncretist's picture

His benchmark for success is keeping the banks from failing.  He's obsessed with what he calls financial market (bank) stability, as he considers bank runs and failures as responsible for the depth and length of the Great Depression.  He thinks that if there had not been a gold standard and the Fed had been willing and able to do the things he has done during this ongoing crisis there never would have been a Great Depression.  It's all just a big experiment for him that starts with preserving the banks, without any serious consideration as to whether or not they deserve it.  It's much to easy for the banks to take advantage of his academic obsessions in ways that our hurting our economy.

Of course, it could be someone like Paul Krugman up there, so I'll stop ranting on B.S. Bernanke for now.

Thu, 06/07/2012 - 15:50 | 2505123 Kayman
Kayman's picture

Krugman is Bernanke's foil.  Paid by the Criminal Bankers to make Bernanke look like a reasonable man. 

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