Why Our Economy Is Utterly Screwed
by ilene - September 2nd, 2009 8:49 pm
Why Our Economy Is Utterly Screwed
Courtesy of Karl Denninger at The Market Ticker
Steve Liesman once again stunned me with his lack of understanding of matters economic today, when he commented that "in all recessions since 1970 at least the original part of it (recovery) has been jobless."
Yes, Steve, but why is any of this a surprise? What part of this graph isn’t instantly obvious to anyone with more than two firing neurons in their head?
That’s credit and population growth normed to a base of 1970. Population went from roughly 205 million to roughly 304 million during that time, a 50% increase.
Outstanding consumer credit went from $128 billion to $2,525 billion, or a 1,973% increase – and this is only consumer credit, ignoring mortgages, financial firm credit, business credit, commercial real estate and of course government debt!
Why are we not seeing "robust" economic growth when we exit recessions? Why is there no real hiring going on? Why can we not have a robust economic recovery? Why are we are replacing good jobs with "McJobs" that pay half as much – or less? And more importantly, where did all the "so-called prosperity" really come from, especially from 1994 on?
In each and every instance of recession from 1970 onward we have "pulled forward" more and more demand and created fake "prosperity" through the creation of ever more debt that we have goaded consumers to take on. By doing so we have crippled the ability of the economy to grow, redirecting as much money as possible to a handful of people and firms (commonly known as "banks" and other "financial companies") instead of directing that effort and money into productive enterprises such as building cars, television sets and similar items.
THIS time though the recession didn’t come from "ordinary business conditions"; it instead happened because the credit carrying capacity among both consumers and businesses hit the wall – they could no longer make the debt service payments and started to default.
It began with "subprime" mortgages but that was nothing other than the first "hiss" of trouble out of the pressure vessel as the structural integrity of the fraud-laced credit system, where "capacity to pay" became a bad joke, had begun to disintegrate.
We pushed the envelope of fraudulent credit creation and the sale of fraudulently-underwritten debt too far – and it blew up in our collective
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DiggThe Shell Game – How the Federal Reserve is Monetizing Debt
by ilene - August 26th, 2009 8:31 pm
Fascinating! H/t to Zero Hedge for finding this excellent article by Chris Martenson. (See also Tyler Durden’s "Is The Fed Enabling Foreign Central Banks To Swap Out Their Agency Debt Into Treasuries?") And welcome to Chris Martenson of ChrisMartenson.com!
The Shell Game – How the Federal Reserve is Monetizing Debt
Courtesy of Chris Martenson
Executive Summary
- The Federal Reserve and the federal government are attempting to "plug the gap" caused by a slowdown of private credit/debt creation.
- Non-US demand for the dollar must remain high, or the dollar will fall.
- Demand for US assets is in negative territory for 2009
- The TIC report and Federal Reserve Custody Account are reviewed and compared
- The Federal Reserve has effectively been monetizing US government debt by cleverly enabling foreign central banks to swap their Agency debt for Treasury debt.
- The shell game that the Fed is currently playing obscures the fact that money is being printed out of thin air and used to buy US government debt.
The Federal Reserve is monetizing US Treasury debt and is doing so openly, both through its $300 billion commitment to buy Treasuries and by engaging in a sleight of hand maneuver that would make a street hustler from Brooklyn blush.
This report will wade through some technical details in order to illuminate a complicated issue, but you should take the time to learn about this because it is essential to understanding what the future may hold.
One of the most important questions of the day concerns how the dollar will fare in the coming months and years. If you are working for a wage, it is essential to know whether you should save or spend that money. If you have assets to protect, where you place those monies is vitally important and could make the difference between a relatively pleasant future and a difficult one. If you have any interest at all in where interest rates are headed, you’ll want to understand this story.
There are three major tripwires strung across our landscape, any of which could rather suddenly change the game, if triggered. One is a sudden rush into material goods and commodities, that might occur if (or when) the truly wealthy ever catch on that paper wealth is a doomed concept. A second would occur if (or when) the largest
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Consumer Credit Plunges Record $11.1 Billion
by ilene - May 8th, 2009 11:39 am
Courtesy of Mish’s Global Economic Trend Analysis
Consumer Credit Plunges Record $11.1 Billion
U.S. consumer borrowing fell more than expected in March, plunging a record $11.1 billion, a Federal Reserve report showed Thursday.
March consumer credit fell at an annual rate of 5.2% to a total of $2.55 trillion. This was the biggest percentage drop since December 1990.
Non-revolving credit, which includes closed-end loans for big-ticket items like cars, boats, college education and holidays, dropped $5.7 billion, or at a 4.2% rate, to $1.6 trillion.
Revolving credit, made up of credit and charge cards, fell $5.4 billion, or at a 6.8% rate, to $946 billion in March. This compared with a revised $9.7 billion drop in February.
Total Consumer Credit Outstanding
click on chart for sharper image
There is no way those loans can be all paid back, so they won’t. Rising unemployment and falling asset prices seals the fate.
Total Consumer Credit Outstanding % Growth
click on chart for sharper image
As a sign of consumer retrenchment, banks willingness to extend loans, and rising defaults, we are about to see the first contraction in consumer credit since the early 1990′s.
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