Alan Abelson, in this morning’s Barron’s, quotes Macro-Maven’s Stephanie Pomboy on why the consumer is soon to be spent-out:

“Whatever those worthies were smoking, it must have smelled pretty good because the investment mood until this past week was happily, giddily upbeat. The sentiment readings were almost uniformly bullish. Those blue skies were virtually cloudless: The economy was headed for another solid gain and corporate profits would continue on their merry way. Oh, rising oil prices could be a nuisance, but oil really didn’t matter all that much any more. Retail sales weren’t exactly robust — but not to worry, the consumer would come through as usual. Etc., etc., etc.

The trouble with fantasies is that no matter how pleasurable while they last, they leave a distinctly bitter aftertaste when they go “poof.” And last week they went “poof.” The economy obviously has been slowing, as will be evident when we get the first reading on GDP. Inflation may take an occasional breather, but it’s very much alive and malign. And is there any sentient — or should we say sober — soul who can’t hear the air finally oozing out of the housing bubble?
But sorriest of all is that the greatest consumer buying binge ever is starting to fade. And the reason why can be discerned in that simple but eloquent chart on this page, courtesy of MacroMavens. And what it shows unequivocally is that home-equity loans, which have been one of the great springs of the growth in the consumer-driven economy — the source, as MacroMavens’ proprietor, Stephanie Pomboy, puts it, of the “marginal consumption buck” — are going south for the first time since the last recession in 2000.

The downturn in home-equity loans, she further notes, is part and parcel of the recent overall sharp retreat in consumer borrowing, which has suffered its first quarterly contraction since the recession of 1991. And credit, she notes, “has come to replace wages as the driver of consumption. Last year, the $375 billion gain in disposable income fell way short of the $500 billion increase in consumption.”

Yet Wall Street doesn’t seem to care, she observes. It’s a bit like the ground is gradually giving way under your feet but you’d just as soon not hear about it.”

Couldn’t agree more. We addressed the correlation between home prices and consumer spending at RM back on January 10; for those of you w/o subs, I just moved that post here.

Also, I am compelled to point out that the August 31, 2005 WSJ piece, Shopped Out? is starting to look pretty good. I took an inordinate amount of grief over that one.

In trying to guess what remotivates the consumer, all I can come up with are these 5:

• Surge in hiring
• Decrease in inflation
• Rise in real wages
• Drop in Gasoline prices
or lastly
• A cut in interest rates.

Barring any of those of 5 — or even better, some combination — I do not see how consumer spending moves appreciably higher any time soon…

Source:
Jihad Jiver
UP AND DOWN WALL STREET
ALAN ABELSON
Barron’s, MONDAY, JANUARY 23, 2006
http://online.barrons.com/article/SB113780094391852533.html

Category: Economy, Real Estate, Retail

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “Home Equity Loans Fall of the Cliff”

  1. John East says:

    Many of us bears have been predicting the end of the debt funded boom for some time, but the constant upbeat chant from Wall St. has often made me think, “They can’t all be liars, maybe, just maybe, I’m not seeing something that they are seeing.”

    It seems more and more likely that what the bull spokesmen and financial TV pundits have been seeing over the last year is the prospect of no more pay cheques for themselves, and seeing cheerleading as one way to delay the inevitable.

  2. B says:

    I still don’t buy the commentary by the bears that the world is falling off of a cliff and America’s boom is over. Wages are showing a disparity-a social problem-but American business has not been this competitive in forty years. We dominate nearly every global industry and have the most flexible economy ever seen on earth.

    But, I do believe people have become very nervous and tightened the purse strings. That is more than obvious. Much of this, in my opinion, is cyclical but has been exacerbated by the media’s nonstop pump about bubbles, Iran, world crisis and oil. Even the speculators would have a change in psychology after being bombarded. Media are no different than hedge fund managers. They need a return. So, just like hedge fund managers that need to go with the hot money, the press are like locusts and build a froth over a story then the American public becomes hypnotized. It is becoming absurd. People need to “free their mind”. Otherwise, this correction may turn into a rout. But, in the long term they are doing the smart money a favor. They are building the long term wall of worry.

    If America goes down, the world as we know it is over. Anyone think buying foreign assets will save them when American business and consumer demand dry up? Talk about a rout. Wait till the losses you see pile up in emerging markets fixed income and equity markets. But that is so so remote. The world has it in their best interest to finance our mess until we are ready to clean it up. And we will. When? Who knows.

    American debt as a percent of GDP and personal income are less than they were in 1981 and our debt/future obligations are a pittance compared to a significant amount of other nations. People just don’t seem to understand if Bill Gates has $1 billion in debt, that’s alot different than if I have $1 billion in debt. (America versus, say India or France or Italy) While mortgage debt and home equity debt has exploded, overall consumer debt has not. ie, The view that people have 80 credit cards, a home equity loan and a bubble purchased house with zero down is not accurate…………Although those cases surely do exist. So, peronally, I can’t wait for a correction and confirmation by the smart money to get long. May take six months to get there or may take one but the bears will likely miss the best buying opportunity in years.

    That is why, as Barry and others have stated, you should never be bull nor bear.

  3. Steve says:

    Barry,

    What does the verticle scale of that chart represent? If its y-y growth in home equity loans even at 9 they are a a very high level after 5 years of huge growth. Maybe its something different, I don’t think its % of all loans, hmm.

  4. me says:

    “We dominate nearly every global industry and have the most flexible economy ever seen on earth.”

    Which must be why we have to send everything offshore. The last great export we had, entertainment/movies, is being sent Asia. Disney closed their animation in Orlando and sent the overseas and now they are trying to buy Pixar to get back in the game.

    It amazes me how little people understand what is happening to the economy on the ground. Let’s take IBM. They ahve cancelled the pension contributions in favor of a 401K. Do you really believe anyone with a 401K through their lifetime will have more than a person with a DB plan?

    So now you have to come up with money to contribute to this 401K. Well golly, since IBM has also discontinued raises, certainly for the over 50 crowd, and chopped or eliminated the bonuses, and increased healthcare costs (premiums and out-of-pocket costs), just where does one find the extra money for a 401K?

    Other than killing people or providing the means to kill people, I am not sure what industry is so great and hiring with good wages and benefits in this country. It seems to me that we are more in a race to the bottm with India. That’s all we hear from the likes of the IBMs of this country. India doesn’t pay wages and we have to compete. India doesn’t have helathcare and we have to compete.

    My personal experience is that the job market sucks unless you are willing to work for intern wages.

  5. marsha says:

    um, as one who has no disposable income and watching rent skyrocketing above income I’m gonna say, take money from CEO’s and pay workers.

    Yes, pay the average human being enough money to live decently.

    We would love to spend a crap load then.

  6. Algernon says:

    Just to be the devil’s advocate, the beneficiaries of the significantly higher corp. profits will do some consuming. And the ever-expanding Federal gov’t with the aid of Asian lenders will do some consuming. I don’t think the jig is up quite yet.

  7. RN says:

    “If America goes down, the world as we know it is over. Anyone think buying foreign assets will save them when American business and consumer demand dry up? Talk about a rout. Wait till the losses you see pile up in emerging markets fixed income and equity markets. But that is so so remote. The world has it in their best interest to finance our mess until we are ready to clean it up. And we will. When? Who knows.”

    This comment is an excellent example of why America is in so much trouble. This commentator sees a “faith-based” world rather than an empirical world. In this faith-based world America is just too great and important not to perpetually be held on life-support by our creditors. In the absence of actual good economic argument, this statement often fills the void lately and has become one of common argument by the Kudlows of the world. It plays to American egos, so gets a lot of press incites rah-rah good feeling, but it has little actual validity over anything but the short term.

    Certainly the world appreciates America going into debt and sending their dollars elsewhere, but if this slows, the world will most certainly go on, we can be assured of that. For out there in the real world, China for example is prudently funneling our debt into oil and other commodity resources and other productive investments. It’s doing deals in Africa, the Middle East, India, Russia, Europe. With condolences to the egos of many Americans, the world has much to offer outside America.

    America can very easily render itself less relevant to the world. Dollars buy dollar-denominated assets. US equities, as Barry has pointed out, have been on a long-term road to nowhere. But incredibly this has been the case in an environment of years of negative real interest rates. If financing that easy doesn’t pump up US stocks, what will? US property, as everyone now knows and discusses, is at bubble prices, and its returns in the form of rents and appreciation are not even close to justifying its valuations. US Treasurys are also massively overbought due to currency pegs and now — as everybody’s discussing these days — risk large capital losses. Reasons to own dollars are becoming fewer and farther between. If bolstering the US consumer by keeping the dollar strong ceases to work (and it looks like that process is already underway), that may be the last leg taken out that brings down the table. Dollars going elsewhere and not financing our borrowing will mean high interest rates and high inflation due to the falling dollar, and could put America in a major funk for a long time. The American faith-based cheerleaders don’t think it can happen, but one can dispel that myth with one word: Japan. Japan used to be too great an economic machine to fail too, and a major threat to the US economy, remember?

    If the US consumer falters, as it must barring a change among those 5 conditions Barry points out, America’s relevance will decline substantially. Our “great and powerful” military has already proven itself largely irrelevant, incapable even of restoring civil order in a 3rd world country. If the US or the US consumer falters under the weight of debt, rising prices, whatever, you watch how quickly the world lets us fall as it allocates its money elsewhere and brings hard times to the US.

    Counting on the view of the faith-based “America’s just too GREAT to fail” cheerleaders is risky business indeed.

  8. B says:

    Hey me,
    It’s me. lol. I don’t disagree with nearly anything you say. But, we are not offshoring intellectual property. We are offshoring alot of white collar positions though. Isn’t it funny that we were all for cutting the average wage of a factory worker. Measely uneducated dolts. HA! Far from the truth. I’ve worked the factory gig. Electricians, pipefitters, machine techs, etc, etc. When outsourcing hits white collar folks in their own pocket, outsourcing sucks. Wait until the docs and lawyers start to see outsourcing and wage pressure. It is coming. Actually you can see it already on the fringes. Robotic surgery can be performed with the doc half way across the world. Wait till they have X-ray techs, docs and the like in centralized outsourced facilities running the equipment real time or doing analysis real time. Either in Ohio or Bangalore. Won’t matter. Already see Pharmacists jammed into centralized facilities doing grunt work filling mail order prescriptions. All you need to do is be able to count. Globalization is working its way up the food chain.

    My hope is it will climax when we can OFFSHORE our federal government. It seems other nations are less beholden to special privileges and more worried with getting things done. Nah, politicians everywhere are the same.

    I do agree we have some very significant structural issues. But offshoring isn’t one of them. There is no stopping globalization. That is, unless you want to crush the economy and what jobs there are with it. I am in total agreement with the problem cropping up with DB plans. And Bush wants to give us control of SS? Are you kidding. It’s the only retirement many can count on. (There is no such thing as capitalism. The world is socialist. It’s just are they left or right leaning socialists.)

    I won’t get into an oratory, although I love typing. Globalization is a good thing. When IBM or GE or Oracle offshores those jobs, who maintains the IP rights and patents? We do. And what do we create? A global middle class for our goods and services. Now, I know alot of manufacturing jobs have gone overseas but America still produces 25% of all manufactured goods in the world. As the global middle class is created, we all benefit.

    Maybe IBM or Intel doesn’t dominate the markets in a percentage basis but the pie is larger so the opportunity is greater. ie, If global IT spending was $1 trillion and IBM had 10%, the pie could now be $2 trillion and IBM gets 8%. Is that a good thing. Hell yea.

    We have structural dislocations but America has always found a way because of our flexible economy. We’ll adapt and renew quicker than any other country. Guaranteed. And, there will be one hell of a global boom in the next 20 years. The train has left the station. Individual freedom will not be stopped. It is everyone’s right and desire. So, a prosperous, capitalistic China with 1.3 billion consumers is the best thing America could ever hope for. Ditto with Russia, India, Brazil, etc, etc, etc.

  9. Mike Long says:

    I think the big issue with large amounts of debt on a macro or personal level is that it decreases your flexibility to withstand a rare event or sudden change. Personal: You have much debt. Event: lost job, car crash, disability, house burns down (insurance limits full restitution), etc.
    You are bankrupt b/c you have no flexibility.

    Same with the US, some say the difference is we can print our way out, but that will have consequences also. GDP could decrease & drastically affect the % of debt to GDP. Its like we’re leveraging the country. As long as it works, things are great. The minute something changes on the margin, the leverage exaggerates the problem into a much worse situation.

  10. wcw says:

    Actually, while B. Gross’s post was full of unsupported assertion, that one (that if the US goes, the “world as we know it” is over) is absolutely correct. World capital flows are tremendously imbalanced right now. In round numbers, the US current account deficit will approach $1 trillion in 2006. That number comes from somewhere; much of it from Asian central banks, the rest from “private” investment (read: petrodollars). If the US goes, all that ends, and the world does indeed turn upside-down.

    The rest of his post is pretty rife with unsupported hoo-hah. On debt service alone, I looked it up, since his “fact” didn’t congrue with my receollection. Here’s what the Fed shows: http://www.federalreserve.gov/releases/housedebt/default.htm In 1980Q2, the early-’80s high, the household financial obligations ratio ratio was 16.0%. The 2005Q3 number was 18.6%, second only to 2001Q4′s 18.7%. So dismissing the entire post out of hand is tempting — but it’s not 100% wrong. Just mostly.

  11. Investablog says:

    Home Equity Loans Fall of the Cliff

    The Big Picture blog has a great post on Home Equity Loans. Alan Abelson, in this morning’s Barron’s, quotes Macro-Maven’s Stephanie Pomboy on why the consumer is soon to be spent-out:Whatever those worthies were smoking, it must have smelled…

  12. Dave says:

    “Wait until the docs and lawyers start to see outsourcing and wage pressure. It is coming. Actually you can see it already on the fringes.”

    This is not happening on the fringes, this is the real deal, today. There is a booming business of doctors that are moving down to Mexico and their US clients are following en masse. Also, there are outsourcing groups that specialize in moving accouting and legal work to India.

  13. royce says:

    It’s true about medicine and lawyers, though the offshoring is probably not at the level of factory labor. It won’t change anything, though.

    It’s not until CEO’s start seeing their jobs offshored that anything will change: “Jack– say hello to Sanjay. We’d like you to sort of help him get on his feet before it’s time for you to go . . . We’d like to keep you, but he doesn’t ask for options . . . yes, you do an okay job, but we can pay him a tenth of what we pay you for the same mediocre performance, and even that low salary will allow him to live like a king in his country, wherever the hell it is . . .”

  14. touche says:

    “American debt as a percent of GDP and personal income are less than they were in 1981”

    Here are (national debt/GDP), (household debt/GDP) and (household debt/disposable personal income):
    1981 33% 47% 65%
    1990 56% 62% 83%
    2000 58% 71% 96%
    2004 64% 85% 114%

  15. touche says:

    BTW, the 2005 third quarter ratio of hh debt to dpi is 122%.

  16. KirkH says:

    Good riddance, the granite countertop industry lobbyists have more power than big oil. Imagine if all of the money spent on tile, paint and fancy faucets in the last five years went into new business investment or education. Now, instead, we’re looking at a recession, crushing debt and a severe granite shortage.

  17. wcw says:

    I prefer the debt service number. Interest rates are lower, after all; you can handle more debt right now. Households have larded up, all right, but not by 2-to-1 vs 1981.

    Things would go south in a hurry if rates spiked, but that tends to be a truism.

  18. B says:

    I get a chuckle out of all of the bears ready to pounce when they see something they perceive as wrong. I meant credit debt. I’m only talking about the consumer. The numbers I got from something I read elsewhere was 5.71% for 1980 and 5.63% for the first three quarters of 05. The numbers you show are off a few hundreds of a percent from what I have seen. (I can add. I have a major in engineering and a minor in applied mathematics.)

    So, it does nothing to refute my claim. In fact your link supports my premise. The consumer isn’t dead, the world isn’t coming to an end and credit debt (making sure I am clear enough) is actually coming down. Something I have noted on here before. So, you may not agree with my statements but I can quote as many facts to support my argument as you to support yours. Whatever that is. What is your argument other than mine is wrong?

    Mortgage debt is irrelevant to me. The data is so manipulated and misinterpreted by those who have an agenda that it is worthless. I could argue it is a sign of prosperity that more Americans now own homes. Second homes, homes they eventually rent for income, etc. That it is money that used to be in equities but moved from equities to the real estate sector during the bubble. So, if it were still in equities, and equities were at this level, would you claim we had an equity bubble? It is our President’s dream we all own a home. So, if we all eventually do, does that mean we are headed for the end of the world because our mortgage debt would indeed explode?

    I do think there is excess in the system but it doesn’t mean a crash. There is always excess in the economy in this stage of the cycle. Always. Bears, bears everywhere. I am a firm believer one or two corrections are coming this year in equities. Will the markets recover? I don’t know but i will at the time it is happening based on my work. And history is on my side. Even during the 70s, now let me be clear, corporate profits grew at a higher rate than in the 1990s on an annualized percentage basis. So, while it was a yo-yo market and Americans were extremely negative, profits were just fine. No end of the world. An end to low inflation we may be repeating but not an end of American dominance.

    Everyone wants to let their emotions ride their decision making. I don’t care if the markets go up or down. I prefer they go up because it usually means good times for all are ahead. But shorting is easier/faster so I prefer they go down if I were just a pig. But, I don’t want everyone I know to lose their shirt.

    The problem with taking a position and believing you are right means you’ll likely never make money because you can’t take the trade. Of course, I may be assuming everyone on here is an investor. Maybe not. The old adage that the market can remain irrational alot longer than you can remain liquid. Slam your hand on the table when stocks rally in disbelief and miss the trade. I’m not Nostrodamus but I’d bet a slow down will be followed by some rockin growth. Highest statistical probability. Just look at all of the liquidity globally. This environment is not indicative of crisis and money is still easy. Correction? I think so. Maybe a doozy. The collapse of America? I’ll take that trade anyday.

    Oh, and Mr. Ritholtz said on Kudlow that a correction will likely present a great buying opportunity. That’s the difference. You cannot be married to outside of the bell curve scenarios that have such low odds of ever coming to fruition. If they come to pass, I’ll benefit and take the trade. But, I wouldn’t bet on it happening.

  19. RN says:

    B -

    Interesting points. It sounds like we worry about many of the same things.

    I would never argue globalization is a bad thing. Quite the contrary, while it may cause temporary dislocation and really tough times for subsets of our population, I think these problems should be handled in some other way than trying to stop globalization. Education, training, Keynesian spending on productive investment projects like making our transportation system more energy efficient (building more rail lines for example). Some way to transit people whose jobs have been globalized into productive members of society doing something else the world needs.

    What’s very worrisome is: what can US citizens do (I’m particularly thinking of the outsourced blue collar worker) that the rest of the world will be willing to pay them the same amount they were being paid while working for GM, etc? There’s no obvious answer to this question right now, and idle people who need food have tended in the past to become violent from time to time in history, so let’s hope we figure something out.

    I like very much your idea of offshoring the federal government! In fact I can think of a little better for the US and the world than offshoring Bush and Cheney and their gang of smiling criminals to a quiet barren island off Antartica somewhere…

  20. Max says:

    A cut in Fed Funds which is now widely expected and priced into asset markets, may not re-ignite consumer spending.

    If the assertions that the housing ATM with mortgage equity withdrawal have financed close to 50% of GDP growth are true, then it presupposes that lower interest rates will move home prices back upward. That’s not necessarily true. Debt could still be unwound even in a low interest rate environment if lending standards trend back to historical norms. Addiitonally, the tight credit spreads now could widen, particularly, if rate reductions are as a result of the Fed anticipating an economic slowdown. That would imply the marginal sub-prime borrower could face a higher interest rate even in the face of Fed Funds declines.

    On the debate on the current economic situation in America an important point I believe is being missed and that is America cannot run large trade deficits indefinitely. If we run $600-$700 billion a year trade deficit soon the cumulative claims on American assets that foreigners have could represent the entire market cap of all US companies ($15 trillion). If the yoy growth rate of the trade deficit is at the same rate as the past 3 years we could be at the $15 trillion claims number in another 10 years. So in effect we are giving away the seed corn that previous generations accumulated so that we can have more flat screens and vacations. The question then is do we discipline ourselves or does the market do it for us. The latter obviously will be more uncomfortable.

  21. blue][erring says:

    it’s all very interesting to talk about the value of the data of this or that particular measurement, but it all comes down to the interest rate of mortgages. all last year, ‘everybody’ was calling for interest rates to rise but it didn’t happen. the question is not whether people have enough money in their pockets or will corporate profits trickle down, or anything else. the ultimate and only key issue here is the interest rate that banks give to people that are (re)financing property.

    that’s it. gold says something, the inverted yield curve says something, the market last year said something and the market on expiration friday said something.
    but what it comes down to is, will interest rates rise and how fast and how far, period.

    so, to that end, i’ve been hearing something interesting primarily from rick santelli on cnbc. that is, that with the coming 30year being reintroduced from the market, at the same time that there is a flat to inverted yield curve, that that could, would, should, and likely will dampen interest in that auction.

    if interest in that auction is dampened that means the price will go down (lack of demand, lots of supply). if the price on the 30 year bond goes down, the interest yield on that will go up. how much? how fast? that’s the question, the only question that matters.

    just as a side note, i would point out that while housing has been very strong ever since you could take out $500,000 as a couple, tax free, upon sale of a ‘primary’ residence. the real ‘boom’ in housing lines up very well with the decision in 2002 to remove the 30 year bond from the fed’s auction quiver. it’s coming back in a very few trading days. could the inability of the fed to influence long bonds through fed funds increases be primarily due to the lack of supply in new 30year issues?
    conundrum indeed.

    -][

  22. la says:

    I am probably the only American alive that was never much of a capitalist. I think that it comes from reading Charles Dickens and Barbara Tuchman at an early age. Capitalism looked good in comparsion to the USSR, but, hey, just about anything would have looked pretty good.

    It seems to me that the problem we have now is the classic problem with capitalism-too many assets in too little hands. This leads to all sorts of fun political instability and revolution. Fasten your seatbelts.

    I also think “globalization” or more properly, exploitation, sucks. I was never in favor of sending anyone’s job overseas, Golden Rule and all that, and I had no desire to “save” the rest of the world at the expense of my fellow Americans. I think a lot of people who worry about far away workers are sort of like the Soviets who were soooo concerned about Civil Rights in America but couldn’t care less if Boris down the street was carted off to Siberia. After all, American blue collar workers like Nascar and drink beer, kind of yukky, eh? Many “liberals” have a lot to answer for concerning the most vulnerable members of American society. Social programs can’t work if your tax base has gone overseas. And how is progressive taxation going these days, anyway? But, hey, I’m sure this is what the English wool and French wine guy had in mind all along, wasn’t it?

    Consumer goods should cost more, housing and medical care should cost less. No one “needs” a $15 DVD player, it is quite possible to live a happy life without one, but if you are sick you do need to see a doctor. Maybe a TV that costs $1,500 would be appreciated more and, since each household would be able to afford only one, watched less and TV repairman would have jobs. There are alot of books to be read in the library anyway.

  23. Craig Shergold says:

    Radiology is alread offshoring: Xray and MRI images are easily transmitted around the world, and offshore doctors get licensed in the states and read from their hometowns. They get to raise their kids away from US pop culture and live like very well.

  24. alan says:

    The reason why interest rates have been going down for the last 23 years is not because the savings rate in the US has increased, but because of a concentration of wealth in this country. And what caused this concentration of wealth? Initially it was because of nominal interest rates being much higher than nominal GNP(concentrating the wealth in the hands of the creditor and out of the hands of the debtor, which is deflationary), and then later, the “global economy” leading to outsourcing. However, the outsourcing has been so massive in the last 5 years, that not only have nominal interests gone negative, but real interest rates have also gone negative causing inflation. The core rate of inflation, which Wall Street boasts about, is much higher than stated, and the only reason that it is not even higher is that outsourcing has led to the average worker experiencing negative wage increases. And who have been the beneficiaries of these bogus (because they are unsustainable) lower interest rates and the bogus “global economy”? Wall Street, the bondholders, the mortgage industry and their cottage industries, those that have gone deeper into debt, and those cashing out of real estate because of the subsequent real estate bubble. And who are the losers? The average worker who has experienced negative real wage increases, renters, and those who have kept their money in bank CD’s for the last 5 years. Shame on Wall Street and shame on the promoters of the “global economy” because it’s unsustainable long term and you know it!

  25. Matrix says:

    Correlating Housing Prices With Consumer Spending: Home-Equity Lending Is The Key

    Source: Michael Panzner, Rabo Securities

    The Big Picture lays out a good analysis of how consumer spending correlates with housing prices

    Historically, consumer credit has roughly tracked
    overall changes in house prices. In other words,

  26. B says:

    la, RN,
    You are not the only American alive who questions things. While America is the best example of successful modern society, it is far from perfect. Your points are ones that many, including me, have struggled with.

    Our system is set up to take advantage of human greed. As Gordon Gecko stated, greed is good. Now, I am not espousing that point of view as it is drawn but that is the generally what creates wealth. And, as faulty as we may view components to our society, there aren’t any other countries which have a better answer.

    Globalization is not without dislocations and pain for many. That includes the many in communist countries who now need to learn to fend for themselves when being told what to do for decades. I’m sure it is invigorating yet terribly frightening to many. Not because life under Communism was better, but because it causes uncertainty and personal responsibility. ie, You don’t really know where you next meal is coming from. Maybe before it was just borscht, but it was sort of a guarantee. It is the same emotions people feel about the insecurity around Social Security and the trashing of DB pensions.

    I think globalization is just the fear of the moment. Thirty years ago it was our fear Japan was going to take the mantle of leading industrial power. Seventy years ago it was the Great Depression. One hundred years ago it was the disruption of the agricultural economy with the industrial economy. Tomorrow it will be something else.

    But, as scary as it is, and it is scary to many, no thanks to what I see as a totally inept government policy to help folks deal with career change and personal transformation, there is no going back. Rationally, is the world a better place when people in India and China can now have some of the life choices we have? We are all just trying to get through the best we can. And all people want a better life for their kids. It is such a blessing that millions or billions can lift themselves from the squalor of life. The fact that many business leaders have used that opportunity for others in an exploitive fashion is human nature. And in the end, regardless of the motives, it will likely create lasting positive effects.

    I come from a blue collar family. Life isn’t so great down on the farm. But, trends are changing of some sorts. When I went to college twenty years ago, I was the only person in my extended family ever to go to school. Now, there are cousins, nieces, nephews, etc, etc, going to college. Transforming themselves in a knowledge based society. Those considered too old, may be winding down with a job making less money. I think underemployment is a big problem. And not just for the underskilled.

    I don’t really worry that manufacturing is going to totally move offshore. In fact, it seems to be an American management ineptitude which is causing auto plants and suppliers to shift overseas. It can be blamed on the union but it is really piss poor management. The Koreans, the Japanese, Germans and eventually, the Chinese (will try) built auto plants here. That won’t change. Frankly, in a society that rewards the fittest, I don’t care if the senior management is American or German. Frankly, it appears our business schools, boards or others are incapable of picking the right CEOs so if I worked for a German company committed to America, hey, that’s fine with me.

    I really think the Prez is missing out on this energy play. A chance to create incentives and whole new business sectors with some loose, capitalistic style incentives. I wonder if Friedman isn’t right some of the time. His statement about Chinese government officials being scientists and engineers versus our debating attorney-centric government hobbles us in our search for global competitiveness rings true to a certain extent. A huge oversimplification but…….anyhoo…

  27. Eric Straatsma says:

    What is sustainable? Can we cut benefits, slash social programs, do away with unemployment and medical help while still giving tax breaks to rich people forever?

    Was it wise to do away with the gold standard, which gives a trust foundation to all currencies? What happens if and when the trust disappears?

    I propose that the above scenario is Peter robbing Paul to get short term gains, while masking weakness.

    The last depression happened when the poor were ignored and the rich became much richer, with no end in sight, with lots of rosy predictions.

    Depressions are a regular part of the economic cycle, but this next one may have no bottom, because those at the top did away with the gold standard, in order to further inflate the fiat money supply in order to enrich the already rich even more.

    If and when trust disappears and fear takes over, what will happen?

  28. Two and Two Together

    Whey you put this together with this (reading the links in order is preferable), you get a very low GDP number that can go lower.  I need to do some more digging on the these GDP numbers today, but every one is surprised, even the bears.