Courtesy of Karl Denninger at The Market Ticker
There’s a lot of mind-numbing figures and facts in here, but a few things stick out like a sore thumb.
Let’s first start with the graphs, which I have updated.
Hmmm….. there’s a bit of a hook in there at the back end. Where’s that coming from?
Oh, that’s not so good. Business credit is going up again a bit, and of course The Federal Government is pumping new credit like mad – but is no longer simply trying to compensate for de-leveraging, they’re exceeding that.
This is decidedly negative – in fact, it has the potential to lead to an economic death-spiral if the government doesn’t cut this crap out in time.
Some of the other nasties in here are truly stunning. One of them is the ugly on Households – they lost a net $1.5 trillion in one quarter on their net wealth.
The 900lb Gorilla in the room is found in real estate. While we don’t have current numbers on that and won’t (the update is primarily equities) the ugly on the housing side is breathtaking. From a peak in 2005 of $13.1 trillion in equity in residential real estate, that value has now diminished by approximately half to $6.67 trillion!
Yet outstanding household debt has in fact increased from $11.7 trillion to $13.5 trillion today.
Folks, those who claim that we have "de-levered" are lying.
Not only has the consumer not de-levered but business is actually gearing up – putting the lie to any claim that they have "record cash." Well, yes, but they also have record debt, and instead of decreasing leverage levels they’re adding to them.
In short don’t believe the BS about "de-leveraging has occurred and we’re in good shape." We most certainly have not de-levered, we most certainly are not in good shape, and the Federal borrowing is what, for the time being, has prevented reality from sticking it’s head under the corner of the tent.
This cannot and will not continue on an indefinite basis.