Sunday, December 14, 2008

Chart Day Today!

Hello All

I have a very important football game to watch today(Go Steelers!) so I will be brief.

I wanted to share a few graphs from Itulip that I picked up last night. Eric Janszen did a really nice job here. I will summarize my thoughts after the charts.

As you can see below, for the first time in history household debt is declining:

At the same time wages are falling:

As for the Fed meeting this week. A rate cut isn't going to help us much considering the effective funds rate is already near zero:

Botton Line:

The first chart tells you that households are finally starting to payoff debt. This tells you the consumer is pulling back on spending and paying off debt. This will exacerbate the deflationary forces that are now hitting our economy. I was amazed that this was the first time we have ever paid down household debt in the countries history. This was bound to happen after spending like a drunken sailor for 25 years!

The second chart displays the drops in wages as the economy suffers. Any spike in inflation would be devastating as wages continue to drop. This will also be highly deflationary IMO because people can't pay higher prices for assets when their wages are dropping.

Whats frightening to me is inflation will be a problem down the road as a result of all of the bailouts. The Fed has dropped money out of helicopters to the tune of $8 trillion. This at some point is going to result in massive inflation. The Fed will then be forced to spike interest rates in order to bring it down. Rememeber 1982 when interest rates were 13% on a mortgage? Don't be at all surprised if we see the exact same thing a year or two from now. If this occurs, houses will be selling for 100k or less in many suburbs.

The third chart I just threw up there to show that the Fed rate is already at zero. Any rate decrease that could occur this week shouldn't effect the markets too much. The market rate is already below where the Fed is. We should be right there at zero with Japan in no time!

Add this all up and it spells deflation folks. Hold off buying any large assets like cars, houses, and flatscreen TV's. They will continue to spiral down in price.

Sadly, our economy will spiral down right along with it.



Growler said...

Steelers!......the STEELERS!!!!....

: )

fyi: I grew up in Cleveland.

Jeff said...

14-9 baby!

Love it...What a comeback!

Pittsburgh's going to the Super BOwl!

Avl Guy said...

I smell something fishy about that HH paying down debt story from the Feds.

1. Are these really just write-offs of debts by creditors?
2. How about other forms of HH debt destruction like bankruptcies?
2. Can we see the data by debt type? The ABA tracks 8 categories of non-residential consumer debt.

Only then would I believe it represents savings being applied to debt; I also suspect that the rising unemployment & under-employment would have negated the savings by more fortunate HH's who net enough monthly to pay-off debt.
Finally, I would love to see this data organized by Income of HH, by income quartiles, and by family-size. I suspect the vast middle-class with small kids PLUS college kids are making no debt reduction progress; that it’s actually the very wealthy and aging retirees w/no kids are accounting for the bulk of positive progress since it is measured in volume of dollars and not # of HHs.

Jeff said...


Great points.

As unemployment rises, HH debt should follow suit.

I do personally know of many people that are now hoarding cash and payng off debt. Many feel some bad times are ahead.

Its going to be interesting to see what these numbers look like going forward.

I have dramtically cut back on spending. My debts will be 0 within three months.