There is No Household Debt Crisis 29 comments
December 30, 2008
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As my readers know, I'm a fan of keeping things in perspective. With everyone obsessed by the current debt crisis, deleveraging, and collapsing demand, I've noted that there is no shortage of money out there; that there is more money and bank lending today than ever before; and that the big deleveraging play has likely maxed out. Although big money players were undoubtedly over-leveraged, this chart shows that households on average did not take on excessive levels of debt or financial obligations in recent years. (The most recent datapoint is the end of September '08.)Household debt and financial burdens (measured by using monthly payments as a percent of disposable income) today are about the same as they were in 2002, before the financial system began devouring mountains of subprime mortgage-backed securities, and before speculators pigged out on commodities, gold, and foreign currencies.
What this means is that once the financial system finishes writing down the value that has been lost to plunging housing values and collapsing commodity prices, we will discover that the basic economy (the consumer) is still in reasonably good shape.
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This article has 29 comments:
I fell to the floor after reading this short article.
This article is a complete and utter bold faced lied.
This article provides no facts whatsoever to back up the claims in the title, other than to say:
"Household debt and financial burdens (measured by using monthly payments as a percent of disposable income) today are about the same as they were in 2002"
Why is it then that as Americans we owe over $900 billion dollars in credit card debt?
What about the hundreds of billions of dollars in home equity extraction that occurred from 2003-2006? That money has been paid back?
I guess things must be so good that the government is doing what it is doing simply because it feels like giving free money away to companies.
Seeing as alot of the root of the problem is the fact that americans are broke, defaulting on their mortgages, withdrawing money from their 401(k)'s at an alarming rate to cover their everyday expenses.
My God where do I stop.
This article is a complete and utter bold faced deceptive lie.
As a side note: I quickly visited the authors blog, and not surprisingly I found a link to another blog of someone who is an author on SeekingAlpha.com, Mr. Mark Perry. Another "scholar" who spins every bit of bad news to be "good news", while rationalizing that bad news.
My guess is Mr. Grannis is yet another multi millionaire who has not a care in the world, and happily rationalizes what the average american has to live thru everyday.
Pathetic in my opinion.
- Residential Real Estate Charge Offs are 24 times the 3rd Quarter levels of 2005.
- Commercial Real Estate Charge Offs are 31.5 times the 3rd Quarter levels of 2005.
- All Loans and leases are at 2.4 times the 3rd Quarter levels of 2005.
Please note that the figures above are net of recoveries so the do not come close to representing total defaults.
In addition total debt level is at an all time high up 12.8% from 2005 levels.
Incomes are declining, debts are increasing, delinquencies are rising, foreclosures are at historically high levels, home values are declining and mortgage credit guidelines are tighter than they have been in the more than 15 years. I think your analysis is extremely shallow.
The reality is, as i stated above, this author is one of the "scholar" elites, who is in no way, shape, or form, like the average american family who earns $45K per year before taxes.
I am sure, he is a multi-millionaire whose only care in the world is staying healthy.
I am not against people like that.
I am against people like that who write articles that are utter lies, backed up with zero facts, all the while being I am sure being "quite" well off.
The author's point was about the chart of household financial obligations as a percent of disposable income, sourced from The Federal Reserve. Did archman grasp it, or even look at it?
If the Federal Reserve's depiction is accurate, then the average household uses only around 20% of income to pay for housing, auto and consumer loans, and that IS a reassuring number in the big scheme of things.
If archman's own finances are dire, and friends and family's situations are rocky, then they are simply not like the average, according to the Fed.
and the expression is "bald-faced" not "bold faced"........
On Dec 30 07:41 AM archman82011 wrote:
> As I write this I am pulling myself up off the floor.
> I fell to the floor after reading this short article.
>
> This article is a complete and utter bold faced lied.
>
> This article provides no facts whatsoever to back up the claims in
> the title, other than to say:
>
> "Household debt and financial burdens (measured by using monthly
> payments as a percent of disposable income) today are about the same
> as they were in 2002"
>
> Why is it then that as Americans we owe over $900 billion dollars
> in credit card debt?
> What about the hundreds of billions of dollars in home equity extraction
> that occurred from 2003-2006? That money has been paid back?
> I guess things must be so good that the government is doing what
> it is doing simply because it feels like giving free money away to
> companies.
> Seeing as alot of the root of the problem is the fact that americans
> are broke, defaulting on their mortgages, withdrawing money from
> their 401(k)'s at an alarming rate to cover their everyday expenses.
>
>
> My God where do I stop.
>
> This article is a complete and utter bold faced deceptive lie.<br/>
>
> As a side note: I quickly visited the authors blog, and not surprisingly
> I found a link to another blog of someone who is an author on SeekingAlpha.com,
> Mr. Mark Perry. Another "scholar" who spins every bit of bad news
> to be "good news", while rationalizing that bad news.
>
> My guess is Mr. Grannis is yet another multi millionaire who has
> not a care in the world, and happily rationalizes what the average
> american has to live thru everyday.
>
> Pathetic in my opinion.
I will start with a discaimer: I don't know the author and am not aware that I have read anything he has written before this.
The graph at the lead of the article supports the author's statement you criticize. The last data point (total household debt as a percentage of income) is almost exactly the same as 2002. You may feel that the graph is not valid or there are other factors to compare to that are better. You mention $900 billion in credit card debt. How does that compare to historic levels?
You state "What about the hundreds of billions of dollars in home equity extraction that occurred from 2003-2006? That money has been paid back?" The author's graph shows a slight drop in mortgage and consumer debt from 2007, but higher levels than 2006 and earlier. The implication from the graph is that some of the previous high mark debt has been paid off OR the drop represents defaults.
tcornellison - - -
I agree with your concern about real estate defaults. Although I have not double checked your numbers report, I have no reason to find them suspect. I don't see how they relate to the narrow focus of the article, except through the affects on personal debt. (See end of comment to archman - above - and to the author - below.) You may have intended to make a connection, but, if you had that intention, you stopped your comment too soon.
Carlafia Beach Pundit - - -
Your article is, as far as I know, factually correct, but I have not checked your sources. However, your conclusion is suspect because you have not included analysis of how defaults have affected and will affect the status of the consumer. Defaults impair a consumer for years to come. How resilient can an economy be if consumer debt is reduced by default rather than by retiring debt?
Now that I've succeeded in insulting what three people had to say, I'd better stop. Please note: I think you all have something worthwhile to say, but you haven't said it yet. I hope you come back with further comments to make your points more effectively. Thanks for indulging me.
On Dec 30 08:29 AM whisperonthewind wrote:
> I'm not sure exactly where everyone else is, and I'm not a millionaire,
> or even a thousandaire... if there is such a thing. But my household
> expenses haven't changed one iota, nor has my income changed in either
> direction. My loans are still paid on time, my credit cards are paid
> every month in full, my car is paid off, my insurance is paid, my
> taxes are paid. This is probably why I don't have a lot of money
> in the bank, but I have ENOUGH to stay in this position for now.
> My investments tanked, like everyone else's, but on a daily basis,
> my life hasn't changed at all. IF, as I hope, the market does go
> back up eventually, maybe my financial stocks won't laugh at me anymore.
> My oil stocks will tell me I was right to hold on to them. And here
> and there I'm picking up some stocks that are starting to look appetizing
> now. So for those of us who haven't been living beyond our ability
> to pay, this article isn't too far off base. For those who have that
> never-ending desire to surpass the Joneses, tough luck.
I understand where you are coming from, but you were a little harsh on archman. Give him a chance to clarify his position.
A couple other points . . .
Your statement that "households on average did not take on excessive levels of debt or financial obligations in recent years" isn't particularly relevant (even if it were actually true). So the speculative economies of places like Florida and Vegas are out-averaged by the more sensibly-priced real estate markets of the midwest?
Finally, this quote:
"What this means is that once the financial system finishes writing down the value that has been lost to plunging housing values and collapsing commodity prices, we will discover that the basic economy (the consumer) is still in reasonably good shape."
Well, here's the problem. The reason why we're still waiting for the financial system to "finish writing down the value that has been lost" is because if the big financial institutions actually wrote down their losses, most of them would be insolvent.
I'm personally hopeful for the future (sort of - our gargantuan levels of national debt will eventually--years, hopefully decades from now--require some kind of reckoning, be it in the form of extreme currency devaluation, radically decreased social services, or God forbid, a demilitarization of our empire), but I'm also honest about the current reality of our economy.
$2,000 (wages after taxes each month)
- 403 (mobil home payment - I'm sub prime so its 12.9% fixed)
- 465 (lot rent/water/trash because I couldn't afford land for my home)
- 100 (house insurance- required)
- 125 (electric- not a luxary item)
---------
$ 907
- 120 (car insurance - required by law and I have to have a car to work)
- 80 (gasoline for car)
- 30 (basic phone line - perhaps a luxary?)
- 400 (groceries/toiletries - store brands)
---------
$277
- 25 (my one prescription - not a luxary)
- 35 (internet - a luxary I'm not ready to part with)
- 40 (a movie rental service - a luxary I may have to give up in 2009)
---------
$177 - Disposable income - from which oil changes, car maintenance, house maintenance, eating out, clothing/shoes, and other expences are purchased.
Oops. Forgot that I am still responsible for property taxes on my home, inspection and registration on my car, deductables for health care, deductables for my car if I'm in an accident. AND, I have one credit card that I've been delinquint on because I had to choose between paying the card and putting gas in the tank over the summer.
Nope, no crisis for me.
Here is a list of items I have read, watched, etc over the past 12 months: I am sorry I can't provide further proof or links. Feel free to use the following as a starting point to research.
10% of this country controls 90% of this country's net worth.
Credit card debt (non mortgage, auto loan, etc) stands at $950 Billion dollars, the highest in the history of this country. If we are all so wealthy why dont we just pay it off? Isnt it a known fact that when the stock market is returning nothing, by paying off credit owed it is the same as getting a 20% return on investment - assuming the credit card rate is 20% ofcourse.
Amount of all mortgages owed stands at the highest every in the history of this country.
Amount of equity the average american has, in his home is now under 35%.
The average american family has less than $30K in mutual funds as per latest information provided from the biggest fund families. (approx 6 months ago)
Americans are withdrawing money from their 401 (k)'s at the fastest rate ever, to pay for everyday expenses.
Astonishingly 50% of all baby boomers will rely solely on social security during retirement. The next 20% have less than 100K in monetary assets, the next 20% have less than $200K and the final 10% more than $200K. (recent extensive survey from article on Yahoo about 2 months ago)
Mohbull seems to believe (or wants dearly to believe) that the chart provided for the article by our ever so honest and important Fed is on the up and up...LOL
Does anyone in their right mind believe any charts, or so called facts that our own Federal Reserve hands out??? The same FED who rationalizes that durable goods you purchase mean you are spending your savings as opposed lets say to putting it on a credit card (yes that was said) or the same FED that considers the garbage you buy that loses value every second of every day, to be part of your net worth?
Mohbull wrote:
<<If the Federal Reserve's depiction is accurate, then the average household uses only around 20% of income to pay for housing, auto and consumer loans, and that IS a reassuring number in the big scheme of things.>>
All I can say to this is: mortgage defaults way up, and getting worse. Same with foreclosures. Same with auto leases. Same with credit cards.
Same with consumer loans. On and on and on.
Someone please tell me that I am lying or am I the only one who reads more than just the sports pages of the newspapers?
It is outright comical to think that consumers only use 20% of disposable income to pay for the items listed. The facts and figures that dispel that are written about every day and occasionally the actual numbers are put in print or the internet.
That's ludicrous.
Add to that the fact that for many people, just keeping the lights on is a challenge, and some folks are trying to decide which bill to pay--the car payment or the electric bill.
In reality, the Average American is beset by worries about all these things, and is facing up to the not-so-rosy prediction that their children may not be as well off as he is.
Now, I'm not saying that there's no cause for hope--there is. But to suggest that the uncertainty in most Americans' lives isn't there is to claim that the sky is green, when it's actually blue.
Electric / Water Utility Companies, heating oil & gas companies, cable/ internet/ wireless providers are ALL increasing their allowances for charge offs due to non payment of accounts by consumers.
Anyone who believes any of the absolute nonsense the FED puts out is truly living in a dream world.
As I mentioned before: look at the authors blog and his "blog roll" of friends. On that list you will find another SeekingAlpha contributor: Dr. Mark Perry. This guy Perry, writes the same nonsense as this author, using government figures as examples. Yet for most of us living in the real world, we know that the majority of government data put out is typically distorted or an outright lie.
Both these men, I am sure, are multi-millionaires, without a care in the world other than worrying about their health. They can in no way relate to the average family in the USA. Ofcourse these men pump the market and take every bit of bad news and spin it as good news. As part of the elitist class they make money when average americans are suckered into believing the garbage the Fed/ govt puts out there.
Do not be fooled.
Roughly 2 million Americans lost their jobs in 2008. You don't need to be a rocket scientist to know how their debt service has changed. Who knows how many retirees counted on stocks and dividends for income ? Their debt has surely become more problematic.
Statistics can only illustrate. They do not define.
But in the final analysis, one look at foreclosure and bankruptcy stats is all it takes to see that all is not well for the debt load of many Americans.
A relatively small number of rich folks could have obligations of only a couple percent of income, or zero, pulling the average way down.
A simple explanation like that could explain the Fed's graph, or maybe something else like a sampling population. I am not ready to call the Fed a bunch of crooks because I haven't been thoughtful enough looking at the chart.
Archman, I don't what your chip is, but your ranting at the author and branding everything that disagrees with your own tire-kicking assessments is a big turn off. Some of us are trying to share factual, statistical information like adults without being raving lunatics.
I personally like the blogosphere for the folks like Calafia that dig up these morsels to chew on. I don't want them to be discouraged because they have to take abuse from ranters.
You say 2 million jobs were lost in '08. We have 125 million households. Therefore less than 2% of households' breadwinners lost their jobs. So if 98+% kept their jobs, the graph could very well be about right, on average, reflecting over 90% of breadwinners' situations not changing much.
The big picture can be much better than isolated statistics suggest. Let's say we have a statistic that bankruptcies and defaults have doubled. That sounds terrible, like huge problem! But if they doubled from say 1% to 2%, those numbers suggest it's still a very small problem. If they doubled from 20% to 40% that's a whole different world.
News tends to focus tons of attention on what's changing, so we forget about how large the group is that is not changing. That I think, was Calafia's point in the first place, and a very good one.
On Dec 30 05:24 PM axelrod608 wrote:
> I suggest everyone read HOW TO LIE WITH STATISTICS, an old book,
> hard to find but worth the hassel to find. One criticism I have
> generally with SA articles is the tendency to use graphs, charts
> and statistics in a way that invalidates the source. Averages tell
> very little about one group as opposed to another. Example -
>
>
> Roughly 2 million Americans lost their jobs in 2008. You don't need
> to be a rocket scientist to know how their debt service has changed.
> Who knows how many retirees counted on stocks and dividends for income
> ? Their debt has surely become more problematic.
>
> Statistics can only illustrate. They do not define.
>
> But in the final analysis, one look at foreclosure and bankruptcy
> stats is all it takes to see that all is not well for the debt load
> of many Americans.
or charts can be manipulated any direction one wishes.
Speaking personally, owning a home or dining out or staying in a
nice resort hotel is substantially more than say 10 years ago.
Now the bad news, my income has receded substantially, my investments
and home value have retreated (but not my property taxes & insurance!)
My advice to newer investors is "be careful what you wish for in life".
That pretty boat, Brioni Suit, motorcycle, bigger home, luxury auto is nothing
more than an mirage to "short" term happiness.
The old school guys had it right: If you can't pay cash then don't buy it. And with a home or larger investment have serious "skin" in the game, like 25%+ with a 15 year "fixed rate" - don't get hyped into "tax write offs" or gimmicky
mortgages. Frugality and simplicity now will avoid major headaches
later- this whole economic mess is about overreaching, gambling through
unsustainable equities, real estate, and consumption leveraging.
Spending $500-$1000 to see your local sports heroes or 60 year old "pop" star seems a bit of a poor investment as well. Maybe better to put that money towards paying the mortgage off- that's a "good thing".
Then why oh why, I wonder, do you still read this website everyday? If the market is such a blatant lie, then you would be well advised to stop sinking more time into reading or commenting about it.
Qutie some time ago I applied for a credit card and when the woman heard that I had no debt and owned my home and cars she was thunderstruck. Said she never had that on an application before. I am extremely lucky, that's better than being good.
On Dec 30 08:29 AM whisperonthewind wrote:
> I'm not sure exactly where everyone else is, and I'm not a millionaire,
> or even a thousandaire... if there is such a thing. But my household
> expenses haven't changed one iota, nor has my income changed in either
> direction. My loans are still paid on time, my credit cards are paid
> every month in full, my car is paid off, my insurance is paid, my
> taxes are paid. This is probably why I don't have a lot of money
> in the bank, but I have ENOUGH to stay in this position for now.
> My investments tanked, like everyone else's, but on a daily basis,
> my life hasn't changed at all. IF, as I hope, the market does go
> back up eventually, maybe my financial stocks won't laugh at me anymore.
> My oil stocks will tell me I was right to hold on to them. And here
> and there I'm picking up some stocks that are starting to look appetizing
> now. So for those of us who haven't been living beyond our ability
> to pay, this article isn't too far off base. For those who have that
> never-ending desire to surpass the Joneses, tough luck.
On Dec 30 10:49 PM Muzie wrote:
> It appears half of the commenters have written off the markets for
> good and appear to say that markets will not recover soon, if ever.
>
>
> Then why oh why, I wonder, do you still read this website everyday?
> If the market is such a blatant lie, then you would be well advised
> to stop sinking more time into reading or commenting about it.
On Dec 30 10:26 PM scotty1560 wrote:
> as axelrod pointed out and any decent salesman will vouch, statistics
>
> or charts can be manipulated any direction one wishes.
>
> Speaking personally, owning a home or dining out or staying in a
>
> nice resort hotel is substantially more than say 10 years ago.<br/>
>
> Now the bad news, my income has receded substantially, my investments
>
> and home value have retreated (but not my property taxes & insurance!)
>
>
> My advice to newer investors is "be careful what you wish for in
> life".
> That pretty boat, Brioni Suit, motorcycle, bigger home, luxury auto
> is nothing
> more than an mirage to "short" term happiness.
>
> The old school guys had it right: If you can't pay cash then don't
> buy it. And with a home or larger investment have serious "skin"
> in the game, like 25%+ with a 15 year "fixed rate" - don't get hyped
> into "tax write offs" or gimmicky
> mortgages. Frugality and simplicity now will avoid major headaches
>
> later- this whole economic mess is about overreaching, gambling through
>
> unsustainable equities, real estate, and consumption leveraging.
>
>
> Spending $500-$1000 to see your local sports heroes or 60 year old
> "pop" star seems a bit of a poor investment as well. Maybe better
> to put that money towards paying the mortgage off- that's a "good
> thing".
On Dec 30 06:49 PM mohbull wrote:
> I'm still not ready to call the Fed liars. It's not like Bernanke
> himself does the polling and publishing the data. Teams are involved,
> so you would be talking conspiracy - and for what? Most Fed employees
> are just government workers and not vested in any mischievous profit
> the Fed might be able to turn in its books.
>
> You say 2 million jobs were lost in '08. We have 125 million households.
> Therefore less than 2% of households' breadwinners lost their jobs.
> So if 98+% kept their jobs, the graph could very well be about right,
> on average, reflecting over 90% of breadwinners' situations not changing
> much.
>
> The big picture can be much better than isolated statistics suggest.
> Let's say we have a statistic that bankruptcies and defaults have
> doubled. That sounds terrible, like huge problem! But if they doubled
> from say 1% to 2%, those numbers suggest it's still a very small
> problem. If they doubled from 20% to 40% that's a whole different
> world.
>
> News tends to focus tons of attention on what's changing, so we forget
> about how large the group is that is not changing. That I think,
> was Calafia's point in the first place, and a very good one.
>
>
On Dec 30 04:15 PM billddrummer wrote:
> This article suggests that the "Average American" isn't affected
> by worries about job loss, wealth destruction from the loss of home
> equity, a sinking 401(k) balance, the prospects of not retiring when
> he/she expected to, and the unkempt yards in the neighborhood that
> show the owners have given up and plan to let the banks take over
> their homes.
>
> That's ludicrous.
>
> Add to that the fact that for many people, just keeping the lights
> on is a challenge, and some folks are trying to decide which bill
> to pay--the car payment or the electric bill.
>
> In reality, the Average American is beset by worries about all these
> things, and is facing up to the not-so-rosy prediction that their
> children may not be as well off as he is.
>
> Now, I'm not saying that there's no cause for hope--there is. But
> to suggest that the uncertainty in most Americans' lives isn't there
> is to claim that the sky is green, when it's actually blue.
On Dec 30 02:06 PM John Lounsbury wrote:
> archman82011 - - -
>
> I will start with a discaimer: I don't know the author and am not
> aware that I have read anything he has written before this.
>
> The graph at the lead of the article supports the author's statement
> you criticize. The last data point (total household debt as a percentage
> of income) is almost exactly the same as 2002. You may feel that
> the graph is not valid or there are other factors to compare to that
> are better. You mention $900 billion in credit card debt. How does
> that compare to historic levels?
>
> You state "What about the hundreds of billions of dollars in home
> equity extraction that occurred from 2003-2006? That money has been
> paid back?" The author's graph shows a slight drop in mortgage and
> consumer debt from 2007, but higher levels than 2006 and earlier.
> The implication from the graph is that some of the previous high
> mark debt has been paid off OR the drop represents defaults.
>
> tcornellison - - -
>
> I agree with your concern about real estate defaults. Although I
> have not double checked your numbers report, I have no reason to
> find them suspect. I don't see how they relate to the narrow focus
> of the article, except through the affects on personal debt. (See
> end of comment to archman - above - and to the author - below.) You
> may have intended to make a connection, but, if you had that intention,
> you stopped your comment too soon.
>
> Carlafia Beach Pundit - - -
>
> Your article is, as far as I know, factually correct, but I have
> not checked your sources. However, your conclusion is suspect because
> you have not included analysis of how defaults have affected and
> will affect the status of the consumer. Defaults impair a consumer
> for years to come. How resilient can an economy be if consumer debt
> is reduced by default rather than by retiring debt?
>
> Now that I've succeeded in insulting what three people had to say,
> I'd better stop. Please note: I think you all have something worthwhile
> to say, but you haven't said it yet. I hope you come back with further
> comments to make your points more effectively. Thanks for indulging
> me.