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Saturday, October 27, 2012

Hair of the dog

Another green shoot sighting!
For the first time since the Great Recession hit, American households are taking on more debt than they are shedding, an epochal shift that might augur a more resilient recovery.

For two of the last three quarters, American households’ total outstanding borrowing on things like credit cards, mortgages and auto loans has increased after falling for 14 consecutive quarters before then. Some economists even see an end to the long, hard process of deleveraging — as they refer to the cutting of debt relative to income or the nation’s economic output. That process, they say, has been a central reason for the extraordinary sluggishness of the recovery.
This increase in household debt is a sign of desperation, not recovery.  There are two times when households increase debt, when things are going well and when things are going very bad.  It defies credibility to think that household finances have improved when unemployment remains historically high and food stamp usage is at all-time highs.

To me, the key indicator of the next stage of the economic collapse may be college loan debt.  It is the only debt sector that has remained strong and grown since 2008.  Graduates who can't find work have returned to school with the objective of improving their employment prospects and they are going more deeply into debt in order to do so.  This is the last gasp of the education bubble which Instapundit and others have been warning for the last three years.  Once awareness of the fact that more academic credentials do not ensure employment, only a deeper debt hole, begins to sink in with parents and students, we can expect to see a dramatic decline in education-related borrowing.

Note this section in particular: "Americans have also improved their personal balance sheets by slashing their outstanding credit card debt to $855 billion today from more than $1 trillion in 2008, according to Federal Reserve data. But student debt has continued its inexorable march higher, a “worrisome” trend that economists say could stop young workers from starting new households or could eat into their spending on other goods and services."

It is interesting to see that the idea there is a relationship between debt growth and economic growth is finally percolating into the mainstream economic coverage.  Back in 2002, when I first publicly warned about the potential effects of the housing bubble on the financial system, almost no one understood what I was talking about.  Perhaps in another 10 years, it will finally be acknowledged that there hasn't been any economic growth since 2001 as all of it has been nothing more than an artifact of expanding debt.

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37 Comments:

Anonymous TheVillageIdiotRet October 27, 2012 7:02 AM  

College Loan Debt:
also known as the ;

"Degrees for Clunkers" Program.

DannyR

Anonymous Stilicho October 27, 2012 7:26 AM  

The last 2 employees I have hired are both recent graduates of respected regional universities. Both had GPA's in the 3.5 range. Both are personable, hard workers, and generally nice employees to have around. One, who is our file clerk, runner, and generally our "go-fer" has a degree in journalism and digital media. The other, with an English degree, is a secretary. They both spent 4 years and spent/borrowed tens of thousands of dollars to obtain degrees that are not needed for the only jobs they could find. Curiously enough, there were a number of attorneys with 4 year degrees plus three more for their juris doctorate applying for those same jobs. The employment situation for recent graduates is grim.

Blogger IM2L844 October 27, 2012 8:15 AM  

This increase in household debt is a sign of desperation, not recovery.

This sounds just about right as many people I speak with say that they think hyperinflation may be just around the corner and now is the time to buy things they really can't afford today, but really, really, really won't be able to afford in the near future.

Anonymous Just Mark October 27, 2012 8:29 AM  

My youngest is about to go into college so he can become a high school teacher. He's slotted for 30 hours of CLEP followed by 30 Semester Hours in a community college where grants will cover the cost. Will be interesting to see what happens when he heads off for his last two years at a four year school when I tell the loan people to do for my son and I what they want to do to us. I've told my son he can pay go or not go at all. That is the deal. Are the four year institutions listening yet?

WRT hyper inflation, how do you get hyper inflation without serious increase in wages? I guess I'll be doing like my grand parents. 1 milking cow, 1 pig, a horse trough full of bull head, a chicken coup and a big garden. At least until some government functionary comes along and says you can't do that but we're here to help. God bless the gaurdians.

Anonymous Salt October 27, 2012 8:47 AM  

This increase in household debt is a sign of desperation, not recovery.

Says it all.

Anonymous Athor Pel October 27, 2012 8:47 AM  

" Just Mark October 27, 2012 8:29 AM

My youngest is about to go into college so he can become a high school teacher. He's slotted for 30 hours of CLEP followed by 30 Semester Hours in a community college where grants will cover the cost. Will be interesting to see what happens when he heads off for his last two years at a four year school when I tell the loan people to do for my son and I what they want to do to us. I've told my son he can pay go or not go at all. That is the deal. Are the four year institutions listening yet?
..."




If he has anything on the ball he won't last long in the system as a teacher because it will spit him out. This is assuming he makes it through your state's certification process without seeing it for what it is.

The government school system in America doesn't tolerate competence and that process starts in the schools of education around the country.


If you want to know what I'm talking about please go read,

http://www.johntaylorgatto.com/underground/toc1.htm

Anonymous sww October 27, 2012 9:01 AM  

Vox,

Do you still think that degrees in engineering and the technical trades are worthwhile?

BTW, it can be done with little or no debt if you work your way through and make other choices, like CLEP testing, online learning, and using less expensive community colleges as a bridge to 4 year schools. You have to be creative and work hard to learn what will be accepted for credit, but it can be done.

Anonymous JW October 27, 2012 9:50 AM  

" That process, they say, has been a central reason for the extraordinary sluggishness of the recovery."

There. It's official. The people who were not spending, trying to reduce debt, acting responsibly are the real cause of the economic troubles. Thank goodness they are once again borrowing beyond their means.

Anonymous Godfrey October 27, 2012 9:51 AM  

If Romney wins (and I'm not voting for him by the way) I expect to a massive increase of MSM stories on the terrible state of the economy.

Anybody else remember the Reagan era? Back then we had non-stop stories on homelessness. Homelessness was even a reoccurring storyline in sitcoms. Now we hear very little a about the plight of tens of millions even though the economy is at least ten times worse.

I despise the Republican Party, but even I can see that the MSM has been and is in the tank for the Democrat Party.

Anonymous harry12 October 27, 2012 10:00 AM  

Athor Pel October 27, 2012 8:47 AM
The government school system in America doesn't tolerate competence and that process starts in the schools of education around the country.


In the ( near? ) future, the only available jobs may be in government.


Anonymous DPD October 27, 2012 10:18 AM  

Holy cow, I can now go out and buy all those toy's I couldn't afford. Just think of all the jobs this will create.
I think I'll buy some more guns and ammo. Then build that ten foot barrier fence with some fancy wire on the top around the compound. Install a high tech surveillance system and some dogs that will know how to do more then just bark. The goal is to be self sufficient

Anonymous DPD October 27, 2012 10:23 AM  

Since I am buy everything on credit. Obama is right when he said YOU DON"T BUILD THAT.

Blogger IM2L844 October 27, 2012 10:36 AM  

In the ( near? ) future, the only available jobs may be in government.

It seems like I remember something about Obama, a few years ago, promoting the idea the it should be mandatory for everyone to serve a stint in public service, but it just kind of fizzled out and went away.

Anonymous Cryan Ryan October 27, 2012 10:36 AM  

There is some poetic justice in that gen x'ers who despise their parents for "screwing them over" will find, after their parents deaths, that the home they have been living in and hope to inherit, has been mortgaged to the hilt to support their college fix.

Perhaps the home was not mortgaged, but the parents co-signed to help the punk get the loan. Now the estate is obligated to pay it back.

Same difference.

Damn those boomer parents. Screwed you again!!!

Anonymous Grendelizer October 27, 2012 10:56 AM  

Good gut-level analysis. It truly IS desperation and NOT recovery.

Anonymous O.C. October 27, 2012 10:59 AM  

This increase in household debt is a sign of desperation, not recovery.

Bingo.

There are two times when households increase debt, when things are going well and when--

--they figure, "Screw it, I'll never be able to pay it back anyway, so let's see how much I can borrow."

Anonymous O.C. October 27, 2012 11:05 AM  

@Stilicho

They both spent 4 years and spent/borrowed tens of thousands of dollars to obtain degrees that are not needed for the only jobs they could find.

If I may ask: did you interview anyone who did *not* have at least a 4-year degree?

Blogger Desert Cat October 27, 2012 11:10 AM  

sww October 27, 2012 9:01 AM
Vox,
Do you still think that degrees in engineering and the technical trades are worthwhile?


They are worth far more than most degrees, but from withing the infrastructure industry, I can tell you that engineers are really hurting right now, especially all of those associated in any way with housing or commercial development (which is most fields, since Civil designs the subdivisions and commercial developments, Mechanical designs the building systems, Electrical likewise. Locally, the gubmit funding of road improvements is gradually winding down, as the funds dry up after the spree of spending they did a couple years ago in the name of "stimulus".

The jobs are damn good for the amount of education required, but we're in as much of a slump as the rest of the economy at present, unless you are willing to relocate to get into the mining and petroleum sectors. Those seem to be booming lately.

Anonymous Josh October 27, 2012 11:14 AM  

Mining, petroleum and chemical engineering, welding, machining, and truck driving school.

Or just move to North Dakota or South Texas.

Anonymous zen0 October 27, 2012 11:20 AM  

--they figure, "Screw it, I'll never be able to pay it back anyway, so let's see how much I can borrow."

And then when it all caves in on them, they will throw themselves on the mercy of government like one gigantic too- big-to-fail bankrupt demographic zombie. (BDZ)

Anonymous aero October 27, 2012 11:23 AM  

Hair of the dog
Did VD over indulge in umbrella drinks. Then came up with this correlation about recovery.
VD should learn to drink responsible. If he can't, he should hire someone that can handle it for him. I suggest he should hire Nate.

Anonymous rycamor October 27, 2012 11:36 AM  

The problem with modern education is that most degrees are for things that don't directly produce anything.They are ancillary to what a real economy needs at its base: production of goods, or work that preserves wealth in some way.

Young people have spent the past 2 decades abandoning the farms en masse, to the point where Joel Salatin says the average age of a farmer in the USA is 60 (!). There's big opportunity there, especially with the rebirth of public interest in small-scale local farming, and the incredible amount of knowledge available nowadays on biointensive gardening and other means of getting high production out of a small amount of land.

Machinists are also in high demand, as well as many other types of skilled labor. It is ironic that young Americans abandoned physical work, making themselves almost useless at anything except paper-pushing, only to end up fit for nothing but unskilled labor.

Another hint: property preservation. There are millions of houses sitting without residents, and if those houses aren't preserved in some way, they will end up with dry rot or black mold or any of umpteen different problems that happen to an unoccupied house, and will end up worthless within years. Learn how to preserve and prepare a house for resale and you will have tons of work. With enough moxie you could probably start your own business and contact property management firms who are begging for this sort of help.

Anonymous E. PERLINE October 27, 2012 11:42 AM  

I calculate that in "good times," half the populaion lives fully up to its income and another quarter lives beyond its income. That's how humans are programmed.

All they want to do is continue living that way, but unfortunately they fall for scams where growth, by nature, becomes minus zero. The only way their vote can really count is what they choose to spend money on. That's how the market stays informed.

Political voting is quite another matter. It would be best if most humans let capitalism do its job unhindered, allowing them to indulge in their usual profligacy.

Anonymous Aeoli Pera October 27, 2012 11:48 AM  

It is ironic that young Americans abandoned physical work, making themselves almost useless at anything except paper-pushing, only to end up fit for nothing but unskilled labor.

You exaggerate. Young Americans did as they were told. Unless they didn't, a large percentage of whom comprise the 1 in 50 Americans in prison.

But hey, at least the ones in prison are creating more jobs!

Anonymous E. PERLINE October 27, 2012 12:13 PM  

Combine distasteful work with a little imagination and you can have your own business. For instance, have you seen dirty bathrooms in gas stations? The clean ones were serviced by a small group of franchisees. They are now being bought out by Waste Management.

I say you don't need to buy a franchise to establish such a route, and a small operator can compete with a large operator too. It was one of the services that I recommended to a college graduate, but he found the idea distasteful. He didn't recognize that there can be more creativity in cleaning toilets than choosing what tie to wear in some office.

Anonymous rycamor October 27, 2012 1:15 PM  

Aeoli Pera October 27, 2012 11:48 AM

It is ironic that young Americans abandoned physical work, making themselves almost useless at anything except paper-pushing, only to end up fit for nothing but unskilled labor.

You exaggerate. Young Americans did as they were told. Unless they didn't, a large percentage of whom comprise the 1 in 50 Americans in prison.

But hey, at least the ones in prison are creating more jobs!


How is it an exaggeration? Even if they did as they were told (by guidance counselors, political leaders, and television), they still did it. They refused to think for themselves.

Anonymous rycamor October 27, 2012 1:24 PM  

The old American way of doing things was that even if you had plans to be a white-collar master of industry, you spent your time working manual labor, and learning how the world works from the ground up. Even some relatively elite Old Money families would force their sons to work in the mail rooms or be floorwalkers at their department stores for awhile. This is not only philosophically good for the elite to understand what they govern, but also good insurance against the possibility of rapidly becoming the un-elite.

These days I get sent to some of America's largest companies as in IT consultant, but I spent at least 10 years of my youth working various skilled labor jobs, and I could easily fall back on one of those: painting, boat refinishing, landscaping, gardening, home repair, woodworking, carpentry... a man should have a well-rounded skillset. As Heinlein said, specialization is for insects.

Young people have this idea--fostered by leaders and media--that if they don't have their careers figured out by age 24, they are toast. Nothing could be further from the truth. The real danger is trapping oneself with a single skillset and an entitlement mindset. There were times when I was 25, sanding the side of a yacht, covered with dust and sweating in the Florida sun, that I wondered if I would ever break into some better line of work. Then I realized that even if I stuck with that job, I had everything I needed, AND I had very little debt. That is a freeing thought. Once you have a decent subsistence base to work with, and no giant debt wave waiting to crash on you, you can take time to explore the possibilities in life.

Anonymous Sam Scott October 27, 2012 2:10 PM  

rycamor,

The problem with modern education is that most degrees are for things that don't directly produce anything.They are ancillary to what a real economy needs at its base: production of goods, or work that preserves wealth in some way.

I disagree, unless I misunderstand your point.

My day job is working for a marketing and PR agency -- I manage all the Internet marketing for our clients. (Not not spam -- what is called "inbound marketing" and garnering qualified business leads, conversions, and sales through various online means.)

And although I do not produce goods or preserve wealth directly, my work does add value. Say I increase a company's revenue by $5,000 a month. It costs the company $2,000 a month to hire my firm, and it would have cost them $4,000 a month to hire someone internally to do the same after salary, benefits, and so on. The benefit to both my company and the client is obvious.

Information workers and "paper pushers" can add value -- not all the time, I'll grant, but in many instances.

Anonymous Stilicho October 27, 2012 2:14 PM  


If I may ask: did you interview anyone who did *not* have at least a 4-year degree?


Yes. The ones we hired far exceeded them in terms of ability and drive.

Anonymous rycamor October 27, 2012 3:16 PM  

Sam Scott October 27, 2012 2:10 PM

I disagree, unless I misunderstand your point.


The point is not to disparage jobs that don't directly produce. Of course abstract work can be very useful and necessary. I work in IT myself. I help companies manage large amounts of data. It is very useful work, but it doesn't directly produce a good. Sooner or later, an economy that is foundering will stop needing people to manage data about things, or provide marketing to sell things. It will need to actually produce those things. The USA has spent the last 2-3 decades dismantling it's capability to produce things, relying on credit and selling our vaunted financial and managerial (abstract) capabilities to the rest of the world, and now we are faced with the inevitable. Abstraction can only carry you so far.

Young people looking for a place to get a toehold would do well to recognize this fact. I'm not about to quit my IT consulting, but I realize that a crash in IT could well be the next big dip, and then I might just have to go and do something directly productive.

Anonymous JI October 27, 2012 3:57 PM  

House prices in our local area are up 30% in the past 7 months. People are saying things like, "It's good to get back to normal", or expressing the attitude that it is perfectly reasonable for assets that are bought with little money out of pocket (i.e., borrowed money) to go up 30% in less than a year. I try to explain that this is insanity of the highest order only to receive blank stares. This will not end well for everyone in the US.

Anonymous cannibal_animal October 27, 2012 6:12 PM  

I want to tell you guys an ugly truth:

Household debt didn't shrink. Ever.

This is contrary to the narrative you have heard in the media, the message of hard-working Americans and their Protestant Work Ethic (although we would never use such a term these days) tightening their belts and doing the right thing. The latter bit may be true, I don't know, but the debt didn't diminish. No, what happened instead is that people kept borrowing because their income was insufficient to keep up with rising prices while maintaining the basic standard of living to which they and their families felt they were entitled living in one of the richest countries on earth. So they levered up and through hours and benefits being cut, through unemployment occasionally hitting, and they tried to wait it out. Unfortunately, that sometimes meant not paying credit card bills on time.

Now creditors live in America, so they know this sort of decision process is going on, and they act accordingly. In order to present a faithful representation of their financial situation to investors, they use an allowance method to write down the debt that they don't think they're going to be able to collect on, which is the established procedure under U.S. GAAP. The effect of this? Household debt officially decreases, but the debts aren't going away and if anything they're increasing. The fact that even the write-down process isn't keeping household debt down is an extremely bad sign, because it's a sign that more and more regular people are turning to debt to finance non-frivolous expenses.

Anonymous The OASF October 27, 2012 8:06 PM  

There was a certain Arrogant Steelers fan who said about 4 years ago that Americans would have to soon go into debt just to pay their utility and food bills.

I wonder who that was?

Anonymous The OASF is Right Again October 27, 2012 8:16 PM  

While we are on the subject, I have been musing heavily over the great American myth of housing "equity." If you now own a home, which most of you do, you are busted, broke, tied-down, your American dream shit-hole is falling apart with no money to fix it, taxes skyrocketing, and you are living amongst disgusting filthy minority immigrants who can't even trim bushes properly, scared for your lives, and just plain miserable. Oh yeah a certain ASF called that actually 6 years ago...

Hmmmmmmm well I think I'm headed to the bar to spend my DISPOSABLE INCOME with that cute bartender chic with the tramp-stamps... and maybe knock a little boo-tay in my phatt black an yellow yoda costume... cya dweebs.

Anonymous Gerd October 27, 2012 9:00 PM  

"I despise the Republican Party, but even I can see that the MSM has been and is in the tank for the Democrat Party."

I would surmise you despise the Democrat Party as well. Both parties are culpable in the awful state of America.

If not, then you don't have a dog in this hunt!

Anonymous E. PERLINE October 28, 2012 8:30 AM  

How can it be guaranteed that any choice we make will be the ideal one? Yet there are times when we have to make such a choice. Otherwise we'll be behaving like spoiled children, or like passengers on a sailoat that's drifting toward the rocks,

Here's a quote that covers the present situation: (and I couldn't put it better myself) "Like it or not, conservative Republicans and Romney are the better of the two evils."



Anonymous patrick kelly October 29, 2012 9:16 AM  

"Here's a quote that covers the present situation: (and I couldn't put it better myself) "Like it or not, conservative Republicans and Romney are the better of the two evils.""

Damn straight:

Why settle for a wimpy lesser evil, go all out medieval on your ballot, Romney 2012.

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