Who Sunk the US Economy in Debt? No, it's not Government.

[denem]

Two Telling Graphs from Steve Keens excellent site:
DebtWatch http://www.debtdeflation.com/blogs

Government vs. Private Sector Debt



Private Debt by Sector



Yep, Wall Street.

Two notes on consumer debt.
1 With wages static, there's been unrelenting pressure to max out the credit card, and get a few new ones.
2. Funny money CDS and 'sophisticated' derivates turbo charged the property bubble.
"Flip That House" - Your bank will help with every new creative credit facility at their disposal.

And yes, the Banks have been sucking up public money, while tightening credit, to pay down their debts, unlike the 1930's when they just went broke.

[denem]

1. PS - Can you see the graphs?

I have trouble with Flickr posting from Australia.

[drmeow]

2. I can

[tosh]

3. I see them.

Good ones.

[denem]

7. Thanks. I had to screen shot them his Nov 26 lecture

lecture at Cambridge University. Always tricky..

[AnotherDreamWeaver]

5. Yes, I see the graphs.

Sure glad I'm out of debt with my now limited income...

[Fumesucker]

4. And here's why the personal debt is so high...

[denem]

6. Yep. They are the figures I was looking for.

Thanks.

[Fumesucker]

10. Here's a link for that..

http://www.nytimes.com/interactive/2011/11/25/business/profits-are-high-wages-are-low-taxes-are-below-average.html?ref=business

[denem]

11. Something unusual about 2010-2011 . Profits have strongly rebounded

as the the rest of the economy staggers on?

[Fumesucker]

21. Exactly..

It's a quantitative difference that's so big it becomes a qualitative one.

[SoCalDem]

12. SEVEN recessions for Boomers

recessions that ratcheted DOWN their "worth"..,and along the way, new costs and constantly accelerating routine costs, have whittled away at us for our whole lives. Most boomers have NOT become wealthy, and probably most will be poor in our old age.,

[patrice]

18. Constant change in expectations has been hard to adapt functionally to.

Get more education. Wrong.
Your job will enable you to pay-off 2nd mortgage. Wrong.
You'll never earn less. Wrong.
Your kids won't NEEEEED your help. Wrong.
Good work is rewarded with job security. Wrong.

[Orsino]

8. Direct link?

These seem important, and I would love to read and share the blog post(s).

[denem]

14. The link is on on www.debtdeflation.com/blogs

but unfortunately it's Steve's 2nd Talk at Cambridge. I had to take screen shots to get the graphs, I've seen the public / private graph out there a number of times but can't find one at the moment. But this man is solid. You can judge the depth of scholarship in a recent pdf.

Bailing out the Titanic with a Thimble
http://www.debtdeflation.com/blogs/wp-content/uploads/papers/NotKeenOnBailoutsFinal.pdf

My Favorite Quote:

2007 OECD Economic Outlook, which was published a mere two months before the crisis began in earnest:

...the current economic situation is in many ways better than what we have experienced in years. Against that background, we have stuck to the rebalancing scenario. Our central forecast remains indeed quite benign: a soft landing in the United States, a strong and sustained recovery in Europe, a solid trajectory in Japan and buoyant activity in China and India. In line with recent trends, sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment.

The OECD should merge with S&P, but perhaps they already have. :)

[patrice]

9. K&R

[Yo_Mama]

13. That's right - but we have BK courts to cut private debt

That is, we have BK courts to cut private debt once it becomes unpayable. You can't do that with public debt - it has to be paid down or paid for forever.

Also, if you count SS, Federal retirements, and stuff like the FDIC/Highway funds, our public debt to GDP ratio is 100%.

If you count unfunded future liabilities, it's more like 280%.

The very high private debt loads are what prevents stimulus programs from helping the economy very much, and the need to spend massive amounts of money in stimulus and bailout programs (not all wise) has boosted debt held by the public very rapidly. Since President Obama's inauguration, Debt Held By The Public has risen from 6.3 trillion to 10.3 trillion. On January 1st, 2008 (before the crash) Debt Held By The Public was 5.13 trillion. Four years, five trillion. We can't go on like this.

http://www.savingsbonds.gov/NP/BPDLogin?application=np

Very high rates of private debt make government stimulus programs ineffective and vastly increase their cost. This is the reason central banks should intervene to quash bubbles, which are characterized by very fast rises in private sector debt. But our current Fed claims they can't do that.

The derivatives and all that didn't cause the bubble - dumping Glass-Steagall in the 1990s plus the Fed shoving rates very low and keeping them there did. The derivatives were just another side cause of allowing commercial and investment banking to mix - that's always a loser.

[denem]

16. Dumping Glass-Steagal enabled retail to link into investment banking.

Citi? Need I say more. But yeah, the first person I'd put on trial in Alan Greenspan.

[girl gone mad]

22. Massive private debt is what makes government stimulus programs so necessary.

The only way to enable the private sector to pay down its debts is for the public sector to increase spending. Not all private debt can be written down (think student loans and second mortgages, for example).

Government debt is not true debt. When the government spends money, there is no corresponding liability in the private sector. A better private sector analog to public debt would be buying then redeeming a certificate of deposit.

When the government spends, the Treasury Department credits the payee's bank account. Stored as reserves, these credits are used to buy Treasuries. When a Treasury is bought, the reserves are transferred from the bank’s reserve account at the Fed to the government’s account.

When the Treasury bills are sold or redeemed, the reserves that were stored at interest are simply switched back to deposits. At the government level, this simply involves a switch between reserves and securities. The government never has to draw on revenue (tax), borrow, or sell assets to cover its “debt” like a household or business would. The government never needs to discharge its "debts" in bankruptcy court. It’s just a matter of crediting and debiting accounts on various government books.

[denem]

24. Not exactly. Yes, a Government is not a bank.

but the Central Bank, such as the Fed, or ECB can do exactly the same as private bank. Known known as Quantitative Easing, earlier derided as Printing Money.

[girl gone mad]

25. QE is not equivalent to printing money.

No net financial assets are created in the process. It's merely an asset swap.

It's an idiotic policy, however, because it encourages the investor class to stampede into risk-on assets while doing nothing to improve the underlying economy.

[xchrom]

15. Recommend

[DreamSmoker]

17. Look at the end of this graph

Those Liar Loans went through the roof..
Those were the Toxic Assets we still don't know about today..

[patrice]

19. Thank you for brining that up. I keep telling anyone who will listen."We don't know the half of it!"

[denem]

20. Yep. And toxic assets are actually Liabilities, bought up

with public assets and the proceeds going to cut private debt.

[fivepennies]

23. funny money

Congressman, Louis T. McFadden’s Fight Against The Federal Reserve Cost Him His Life
Posted on17 August 2011. Tags: Federal Reserve Bank, Louis T. McFadden, US NEWS

(FEDERALJACK) On May 23, 1933, Congressman, Louis T. McFadden brought formal charges against the Board of Governors of the Federal Reserve Bank system, The Comptroller of the Currency and the Secretary of United States Treasury for numerous criminal acts, including but not limited to, CONSPIRACY, FRAUD, UNLAWFUL CONVERSION, AND TREASON.

The petition for Articles of Impeachment was thereafter referred to the Judiciary Committee and has YET TO BE ACTED ON.

READ THE FULL ARTICLE HERE

http://www.federaljack.com/?p=97120

Money is not public - its private. And it isn't funny.

[denem]

26. ...