Via Jeff Harding, here’s yet another look at the so-called Green Shoots, and the hangover from the biggest credit bubble in history:

  • Consumer prices fell 0.4% in February, the first time since 1955 (54 years).
  • Retail sales decreased 1.1% from February to March (seasonally adjusted); sales are off 10.7% from March 2008 (retail and food services decreased 9.4%).
  • The net worth of American households – the difference between assets and liabilities — was $51.5 trillion, down $11.2 trillion or nearly 18% from 2007.That sets Americans’ total wealth back to levels lower than 2004. It is the first decline in American household net worth since 2002.
  • Mortgage credit fell to $10.5 trillion, the first decline since the Fed started keeping track in the 1950s.
  • Americans’ homeowners’ equity as percentage of the value of their homes fell to 43% in 2008—lowest since before WWII.
  • Industrial production fell 1.5% in March from a month earlier; down 13% since the recession began in December 2007, worse than every recession since World War II.
  • National Federation of Independent Business Small Business Optimism Index for February was down 1.5 points to 82.6 (1986=100), the second lowest level in the 35-year history of the survey. This has significant implications for employment and loan demand.
  • According to RGE (Nouriel Roubini) many US banks are insolvent: overall banking capital before the crisis was $1.4 trillion but there are expected losses of $1.8 trillion. Losses from loans and securities generated by US financial institutions are estimated to have been $3.6 trillion at its peak.
  • Defaults on corporate bonds bought by U.S. life insurers may cost “substantially” more than losses on securities linked to subprime, Alt-A and commercial mortgages—further deflation.
  • According to the most recent data from the U.S. Department of Education, default rates for federally guaranteed student loans are expected to reach 6.9% for fiscal year 2007, and are climbing dramatically.
  • Credit cardholders had $962 billion in unpaid balances on general purpose and proprietary cards at the end of 2007, an 8.6 percent increase from the previous year. That figure is expected to climb to $1.2 trillion by the end of 2012, or $6,373 per cardholder.
  • Two-thirds of the $154.5 billion of securitized commercial real estate mortgages coming due between now and 2012 won’t qualify for refinancing; Deutsche Bank, Goldman, and others estimate declines in commercial-property values of 35% to 45% from the peak in 2007. They believe the commercial real-estate slump will rival or even exceed the one in the early 1990s, when bad commercial-property debt played a big role in dragging the economy into a recession.
  • Deflation continues worldwide: Japan, Germany, and China are all experiencing deflation.
  • U.S. unemployment is now at 8.5%.

Nice exercise in reality checking . . .


Green Shoots?
Jeff Harding
Daily Capitalist., April 22nd, 2009

Category: Economy, Think Tank

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6 Responses to “Credit Bubble Hangover”

  1. Onlooker from Troy says:

    This debt deflation dynamic is exactly what the market and the mainstream are missing (or just fooling themselves about). There is still deep denial about what we’ve done to ourselves (the collective we, of course) over the last couple of decades. There are and will be further attempts to rationalize the whole thing and pretend that we’re not finally choking on our debt and that it can’t be fixed by taking on more and pushing the real solutions off to the future.

    That’s the truly disappointing thing about this market (and what it says about our collective psychology right now). We don’t want to face up to the ugly truth and hope it will somehow disappear like it always has over the last couple of decades in a cloud of easy money from the Fed. We must face the truth.

  2. leftback says:

    I am seeing an awful lot of complacency and denial in NYC at the moment. Few people seem to realize that the money pumping machine downtown has been turned off and this will have far reaching consequences for the city. At the same time it has been replaced by a money pumping machine in Washington DC. Very few people can see the difference between a recession and a debt deflation.

    Perhaps the recent market rally and the abatement of economic apocalypse stories on TV have blinded people to the existence of zombie banks, zombie REITs and zombie companies. I am starting to see zombie families now, where one or both jobs have been lost, but life goes on as though in denial because “something will turn up soon” and “life will go back to normal”. Foreclosure and bankruptcy are inevitable for these people, who are now surviving on savings, credit cards and family largesse. The irony is that many of them would have been classified as Prime borrowers two year ago before the bubble burst. This is not subprime, it is the second wave.

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