Richmond Fed Economic Brief, “Where Are Households in the Deleveraging Cycle?,” by R. Andrew Bauer and Betty Joyce Nash. PDF
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Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
The best way to keep money in perspective is to have some. —Louis Rukeyser
"It's the end of the world as we know it and I feel fine" say the French as consumer confidence in May rose to the highest since Nov '10 as they welcome and get excited about new Pres Hollande. Also, the French 10 yr bond yield touched the lowest on record this morning. June consumer confidence in Germany held at 5.7, just .2 pts off the highest since Mar '11. To the euro bond debate which is now taking on greater rhetoric with those with high bond yields wanting them and those with low ones saying no way, ECB member...
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February 11th, 2012 at 9:03 am
Your average American (excluding leeching public “servants” of course) is essentially living in perpetual debt his or her entire life.
Not shown in this chart are increasing property taxes to pay off municipal debt, possibly student loans and of course tens of thousands in sovereign us debt per taxpayer.
I laugh at talk of deleveraging since it is clear that credit has been forced to expand overall and it all essentially runs off of the working proletariat.
You’ll know deleveraging is here when markets and asset prices fall ie cost of a house, college tuition etc.
And they will.
February 11th, 2012 at 9:12 am
Read the explanation Mayor. 85% of the debt came from mortgage debt from 2000 to 2007. So when I see this chart I see the large growth and remember 85% is mortgage. The deleveraging has a lot to do with people no longer under this debt because they’re losing their homes on the downside.
Your post seems to be like my grandfather screaming about credit cards to me. Let’s use a real example of debt here. I was 85k in debt after Business School. Wow huh? 2 years and 85K, not to mention my house etc. Was that smart or stupid and was that debt bad? Consider that 3 years after I graduated, my salary increase by jumping up the job ladder was enough to more than pay that off. So was that debt good or bad? How about an undergrad who’s resume goes in the trash pile without a degree? How about for a car so you can get to your job?
Once again I think I’m faced with the simplistic mentality that drives people to think others are living high off the hog on UE benefits or welfare. Also, let me clue you in, at the business level all debt isn’t bad either. And at current rates it’s better than issuing equity in most cases. I don’t understand people like you.
February 11th, 2012 at 9:34 am
Using the favored, baseball anology…. they are at the “Rockets Red Glare” part of the SSB.
February 11th, 2012 at 9:47 am
On the topic, I made this point with a friend who cited that there has been massive deleveraging in recent years, though that’s good, you really have to look at a long term chart to know the full story.
Somehow, I’d been given the impression that the consumer debt to income ratio was 160+%, seeing it at a “mere” 110% gives me some encouragement.
To Quimby,
I see the humor, where corporate welfare & tax breaks for the wealthy mascarade under the guise of “job creation”, it gives us the need to find a target to offset that waste,, Mayor Quimby makes the blanket statement that all civil servants are “leeches”, this is the same attitude that brought down the right in Hoover’s time and returned the House/Senate/executive branch to the left for most of the century.
I think it prudent to suggest Quimby walk into to the local PD & FD, come clean with them about the “leeches” that they are – face to face.
February 11th, 2012 at 10:11 am
nix the face to face idea Mayor (sounds confrontational) .. but that “leech” comment got a chuckle
.. for the most part government employees get a fair wage to live a life on this planet existance – with that desired job security**
.. the imbalance in our systems is = recycle’g that paper* they are paid – when it exits the community they serve – there is the jist of our problem – Madison Ave talking us into Bavarian cars and castle tourism to create a wave for WS
.. I could go on and on but the school of hard knocks will teach – have a pleasant singles day
* that paper doesn’t burn up or cease to exist – till what I stated
** (maybe the job security needs tweeking for performance)
February 11th, 2012 at 11:28 am
“household debt FELL to 113 percentof disposable personal income…”
If that doesn’t accurately sum up the financial situation of America I don’t know what could.
February 11th, 2012 at 3:27 pm
Economium you are full of you know what:
1. http://static.seekingalpha.com/uploads/2011/2/28/saupload_total_credit_market_debt_vs.gdp_.png
The idea that there system is somehow free to now expand is ludicrous. Credit vs. collateral is at record extremes and we are facing yet another credit crunch. Why do you think they keep lower rates and enticing borrowing aka money creation?!!!
2. The public workers work for me. Period. They are not only overpaid but conspire to destroy and undermine basic freedoms such as property ownership…freedoms that PRE-DATE the forming of this country.
3. I support MUCH higher taxation of the wealthy so we agree there. In fact, I would probably go further than you with increasing taxes on the wealthy….they garnered essentially counterfeit money because all of the housing bubble wealth transferring was predicated upon a complete lack of collateral…ie they printed themselves money basically. Tax it BACK.
4. As for face to face….hahaha…I would be happy to tell them that, assuming they are overpaid and collect pensions which shouldn’t even exist in the first place.
February 11th, 2012 at 3:44 pm
Frilton and Greg-
I’ve said it many times here…public unions have done MORE damage to the middle class than anything wall street ever did. Nobody FORCED people to chase bubbles. But unlock unions bribed politicians with votes to FORCE people to pay EXORBITANT property taxes all across the nation…even in NH, TX and other supposedly right wing states.
Don’t think of it as lft or right….it is just a bunch of predatory special interest groups feasting on the increasingly boney carcass we used to call the middle class.
February 11th, 2012 at 4:42 pm
“freedoms that pre-date the forming of this country” .. like riding a horse down a dirt road hunting deer, squirl & rabbit roasted on a wood cut fire, rinsed in the creek. Homesteading with rope & bucket wells drawing earth filtered H2O. Squabbles were settled with a gun fight @ the OK Coral, skip calling the sheriff it would take to long and he’d probably expect a hog or something next month. Those were the days.
Corporations can form power unions but not people – got it .. HeadEast “Hold on Loosely”
February 11th, 2012 at 4:44 pm
Quim,
remember, you’re addressing peep that don’t think in terms, like..
http://search.yippy.com/search?query=Vote+Pump&tb=sitesearch-all&v%3Aproject=clusty
or, for that matter, have read anything about..
http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus-ns-aaf&v%3Aproject=clusty&query=Tammany+Hall
http://www.nevadaobserver.com/TNO%20Reference%20Page%20File/Photo%20Page%202.htm
to say nothing of Terms, like “Featherbedding”, or “Political Patronage”..
February 11th, 2012 at 4:56 pm
Greg- c’mon man. This isn’t rocket science…NO ONE in New Jersey can ever “own” a home. So why bother? If people are forced to pay for services they don’t need ie childless families forced to pay for teacher pensions when they themselves get NONE, we have lost any chance of even pretending to be a free nation. Just think about how out of control that is. The median wage in NJ is $60k and the average property tax bill is $7,200. That is INSANE.
As far as I’m concerned, if you support this and can rationalize it, you can support and rationalize almost anything.
There IS NO rationalizing this crap and when the entire edifice of bullshit, corruption, scams, lies and easy money crashes (and it will), TENS OF MILLIONS are going to wish they had that $7,200 back…because they won’t have the ability to FEED THEMSELVES.
You had better be careful about what you think is ‘right’ because you are living WITHIN an unrealistic and unsustainable system. The non sensical seems possible and sensible. But hindsight will make fools of most public union apologists, republicans, democrats….nearly everyone.
You will see.
February 11th, 2012 at 4:59 pm
Mark- really its very simple. You give a politician something ie money, power, votes, connections and they give you the tax $$$$.
Both sides do it and I have to laugh out loud when one side claims the other is the bad guy.
They BOTH SODOMIZE and steal from all of us!!!
Amazing that at one time people were OUTRAGED at the prospect of an income tax and now clamor for more gvmt, spending, debt etc.
These people will be humbled, humiliated and silenced. Actually, they will be embarrassed to think about what they wrote because it makes no sense in the context of what is sustainable,
February 11th, 2012 at 5:30 pm
Quim,
it’s too bad that more people choose not to avail themselves to Resources, like..
http://mises.org/rothbard/mes.asp
“…what is said in the preface of this book- Since World War I, there have been very few treatises on Economics. Instead, we see lots of attempts to compartmentalize the discipline and obfuscate it beyond all comprehension, rather than extend core economic principles into other fields. The result is that the individuals who actually PARTICIPATE in the economy are discouraged from learning anything about it, and instead rely on economic “shamans” in government to steer the economy from the top down. If you don’t revisit the basics now and then, you will find yourself running off a cliff after embracing a flawed interpretation of theories that nobody bothers to revisit.
Just to note, this book has been released for free in electronic form at the mises.org website (epub, pdf, html) for general use. Feel free to preview it before adding it to your bookshelf!
mises.org/resources/1082/Man-Economy-and-State-with-Power-and-Market …”
By
Death Penguin (Richmond, VA)
http://www.amazon.com/Man-Economy-State-Market-Scholars/dp/1933550279
February 11th, 2012 at 5:46 pm
That quote is on the money!
February 11th, 2012 at 7:53 pm
Quim, Hoff – perhaps you two could get together & spend hours congratulating, commending and applauding each other…if ll goes well, maybe it could lead to a second date, a romantic weekend getaway replete with more intense ego massage in an intimate candle lit setting….
Hang around fellows who agree with you all the time, your understanding of fact becomes inbred, banjo playing intellect, homozygous economics…..a “supply-side only” understanding of supply/demand economics.
On unions (I’ve no affiliation with any union), since the drop in unions, circa 1970′s, so have wages fallen relative to GDP and the onset of disparity, the increase in middle class indebtedness to it’s currently unsustainable zenith.
The ratio of union to corporate money in politics is pathetic, unions pale in comparison to corporate spending, though no one should be bribing officials, let’s get real – corporations dump FAR more money into bribery than any union.
Koch brothers are the primary source of funds for ALEC, one of the largest insurrectionist organizations in U.S. history, Alec is now all but running each of the “R” states Koch and Murdoch bought in 2010 – Wisconsin being the prime example….and Walker (Koch-puppet) has realized a small caveat to that game plan, in this Democracy the people actually still count despite voter restriction or gerrymandering.
On the hairsplitting of data on debt, the whole “irresponsible borrowers got what they deserved” routine is old, real old, back and forth debate over your version of Plato’s allegory vs reality is as intellectually stimulating as a hangnail, I’d watch Fox firsthand if I thought they spoke in fact, not regurgitation of Fox. (fox puke – oh goody)
February 11th, 2012 at 8:09 pm
I support private sector unions. Without them, workers will get bupkis.
But public sector unions are united against…OTHER WORKERS. I really am shocked that I have to explain this crap to them.
Teachers and garbage men and cops etc. are paid by OTHER WORKERS.
So for example, a cop that makes $60,000 and pays $15,000 in taxes can simply be paid $45,000 and taxed at zero.
NO DIFFERENCE.
Do you know what happens if everyone else gets taxed at zero? The cop gets minimum wage maybe.
You simply can’t have public sector unions because they unite to hold other workers, their employers, hostage. They unite to bribe politicians with votes for INSANE PROPERTY TAXES, SALES TAXES, STATE TAXES ETC.
THEY ARE NO DIFFERENT THAN ANY OTHER SPECIAL INTEREST GROUP THAT IS GORGING ITSELF AT THE PUBLIC TROUGH.
And people will be PUT OUT OF HOUSES if they don’t pay some cop in Connecticut or Los Angeles his $92,000 pension at 55 plus accumulated sick time and other bullshit.
THIS IS BLATANT THEFT and is materially no different than walking up to EACH CITIZEN WITH A GUN IN THEIR FACE AND ROBBING THEM.
You people are psychotic if you think any of this is okay.
Republicans are psychotic if they think zero percent cap gains and lower taxes on the wealthy who have essentially turned the entire feral reserve system into a money printing cash register for themselves is okay.
BOTH SIDES AND ALL OF GVMT IS RIPPING OFF THE AMERICAN PEOPLE and when TSHTF chaos will ensu as the wealthy try to raise taxes to collect their debt payments….debt payments that were literally forced upon all of us.
February 11th, 2012 at 9:04 pm
In another era, I’d agree more on a rant over public unions….though there are exceptions, such as any patrolman’s pension being as high as $92K, (I suspect that example is a higher ranking official).
A focus on labor unions of any kind in light of the blog topic is terrifically misguided (and I am NO fan of unions), eliminating public unions is a final goal for ALEC (Koch) after decades of success in diminishing private unions.
More importantly, what a cop, teacher, firefighter does with their paycheck is far more economically conducive that someone like Romney, at a 14% tax rate, or Blankfein at 11% does with theirs.
It’s outlined in Milton Friedman’s Permanent Income Hypothesis – lower wage earners spend a far greater percentage of their income – a hell of a lot more of it than a billionaire does.
The time to obsess over your neighbors pay-grade isn’t now, that’s not the problem, in fact it might be part of the solution.
February 12th, 2012 at 7:31 am
Frilton, you’re wrong on this one. Public and private unions are *completely* differ animals. If you lump all workers together you aren’t thinking about where the money comes from to pay those workers.
There isn’t anything complicated or tinfoil about this. Public unions are now paid exorbitant wages, pensions, accumulated sick time etc. when their very employers gt none of that!!!! Imagine making more than your CEO!
It really is that ludicrous.
And while the middle class is being assaulted by this abuse from the left, they also get to see the value of their savings get shredded due to “financial repression”. Then there’s college tuition going up 6 or 7 percent with flat wages, tax increases in the pipeline, property tax increases of 2 percent and a 2 percent inflation target from the fed. Finally, per capita national debt is at records and set to grow ad infinitum.
Keep building those inventories! Keep being the bull thesis. There is no sustained growth I this environment. If you can explain how people with less money every year can afford to lever up in this environment I would love to hear it!
No…what will happen is a monster inventory build expecting a prolonged growth bubble which cannot occur literally. Then the vicious whipsaw. We will get downgraded to a from AA in anothere year or two and sink further into the abyss.
February 12th, 2012 at 6:18 pm
I’m not wrong,
You’re not digesting my point when I say “now is not the time”, any jobs or wages cut, regardless of private or public sector, unions (or space aliens here on work visa from Mars), are a direct cut to consumption, growth and GDP, it’s just that simple.
Keep in mind, it was Milton Friedman who coined the phrase “drop money out of a helicopter” if that’s what it takes to fight deflation.
Whether or not we agree about unions has nothing to do with that, it’s a plain fact, and no, I am not ignoring government debt vs spending, read on –
Simpson-Bowles concluded America loses $1 TRILLION a year in revenues from ineffective tax loopholes, corporate welfare and tax subsidies – THAT is THE problem.
The inception of “trickle down” failure has come home to roost and the data over the last 30 years proves it empirically….consumer & government debt have coincidentally increased faster while at the same time wealthy disparity has…as loopholes increased & top marginal & corporate tax rates decreased, yet middle class wages have dropped relative to CPI & GDP.
It doesn’t take a quantum physicist to deduce that $1 TRILLION per year gives us a LOT of play to both balance the budget and make room for targeted stimulus, infrastructure and small business growth/entrepreneurial lending & creativity.
Our biggest problem right now is demand caused by wealth disparity/unemployment/lower wages, a demand (not supply) side problem, NOT supply-side, further enhanced by ludicrous assumptions that supply side tax policy that got us here is the right solution –
I.E. those who were able to make massive fortunes extracting wealth from both home buyers sold into Sub-primes as well as pension funds sold into buying CDO’s only paid tax rates less than 15% atop extracting such massive wealth from the middle class…..the excuses for continuance of these rates have ranged, from “rewarding success” to “job creation”, while we all know the reason these policies remain in place is political bribery.
The CDO scandal exemplifies the entire picture of misguided regulatory, fiscal, tax and foreign trade policy that only serves the agenda of wealthy campaign donors at the expense of the middle class, the assumption that any and all tax cuts to wealthy and corporate entities automatically equates to “job creation” is failing MISERABLY.
The simple fact is that we should be giving “job creating” tax cuts in exchange for JOB CREATION, not just blindly doling out corporate welfare and tax breaks to political bribers under the assumption we’ll see an ROI on the loss in revenues….this then leaves us discussing depraved cuts to the middle & lower classes in the form of public sector wages, pensions, Social security, food programs for the poor, Medicare and numerous others, all of which cut consumption & GDP.
Your last two paragraphs are correct, you’ve defined the DEMAND problem we are now experiencing, the major source of growth over the last thirty years, but more so the last decade, has been consumer debt used to offset the lack of relative wage growth to increased costs of living, healthcare & education.
Mortgage equity & the subsequent securitization into tradeable, “triple A” assets thereof for the last decade was the last straw, brought to us courtesy of Citigroup’s bribed influence over my government in nullifying Glass-Steagall.
I Agree it is NOT sustainable, cutting jobs & wages in the middle of a DEMAND side problem is the exact wrong track to put the train on, let’s deal with public sector wages once we’re out of this DEMAND side problem, for now we have a whole lot of trade, tax and small business job creation to focus on.
Before we can even get to that, we have to undo the stupefying Supreme Court “Citizens United” decision, bribery is what got us here and that decision could well be the death blow to U.S. Democracy.