Economic Bottom Calls: Willful Ignorance
by ilene - August 8th, 2009 8:19 pm
Economic Bottom Calls: Willful Ignorance
Courtesy of Karl Denninger at The Market Ticker
For my weekend missive I would like to present some charts that should make clear exactly what sort of storm we’re facing in this country, and why the mess cannot be over.
We will start with the most basic of known facts: Consumption is 70% of the economy, the government is the other 30%.
This is the chart that everyone should be focused on as their "first level" analysis; updated yesterday, it is The Federal Reserve’s G.19 data on consumer credit, presented in year-over-year percentage change.
Note a few things about this data:
In most cases during recessions consumer credit growth has not gone negative. Notable exceptions are the 1991/92 recession, the immediate post-war "hangover" and, of course, this one. The 1991/92 recession is particularly interesting in that revolving credit did not stop growing, but non-revolving (specifically, automobiles and other "durable credit-financed purchases") did, as is shown in the detail chart here:
The Fed did not track revolving and non-revolving credit (mostly because there was no material revolving credit) prior to 1968.
I want to focus on the detail chart, and then re-state it a bit. See, our population is growing about 1% annually, but this chart states rate-of-change in gross dollars. That of course ignores the true state of the world in a "per-capita" view, which isn’t accurate. Subtract 1% off the current rates to get there.
The more-frightening aspect of this, however, is the fact that the rate of positive growth is clearly constrained – that is, each bounce has been weaker, and it appears that we have now "hit the wall" for the consumer.
The Stock Market has responded mightily, but to what? That answer is simple – the source, historically, is right here:
With the breakdown it becomes more clear: it is the turn in revolving – that is, credit-card – debt that has led the market up in the modern era. In 80-81 it was nearly two full years before the market turned. In 1987 the turn-up in revolving debt led the market upward. In the early 90s we never really had a meaningful pullback in the market, but again, the turn was not led by non-revolving (primarily durable) debt, but rather by revolving, and when it turned it sparked the 1990s market boom. In 2000-03, again,
Tags: bottom calls, consumption, Economy
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