Consumer Debt Declines $610 Billion, But $588 Billion of It Is From Defaults

[keepinitreal]

September 18, 2010

0.08% The annual rate at which U.S. consumers have pared down their debts since mid-2008, not counting defaults.

U.S. consumers might not be quite as virtuous as they seem.

The sharp decline in U.S. household debt over the past couple years has conjured up images of people across the country tightening their belts in order to pay down their mortgages and credit-card balances. A closer look, though, suggests a different picture: Some are defaulting, while the rest aren't making much of a dent in their debts at all.

First, consider household debt. Over the two years ending June 2010, the total value of home-mortgage debt and consumer credit outstanding has fallen by about $610 billion, to $12.6 trillion, according to the Federal Reserve. That's an annualized decline of about 2.3%, which is pretty impressive given the fact that such debts grew at an annualized rate in excess of 10% over the previous decade.

There are two ways, though, that the debts can decline: People can pay off existing loans, or they can renege on the loans, forcing the lender to charge them off. As it happens, the latter accounted for almost all the decline. Over the two years ending June 2010, banks and other lenders charged off a total of about $588 billion in mortgage and consumer loans, according to data from the Fed and the Federal Deposit Insurance Corp.

That means consumers managed to shave off only $22 billion in debt through the kind of belt-tightening we typically envision. In other words, in the absence of defaults, they would have achieved an annualized decline of only 0.08%.

To be sure, this analysis holds consumers to a harsh standard. Defaults happen even in normal times, and are typically offset by even stronger growth in new mortgage and consumer loans. By holding their debts steady, consumers are actually being a lot less profligate than usual.

That said, the way U.S. consumers are shedding their debts isn't encouraging. Aside from defaults, many are finding relief by refinancing mortgages at extremely low interest rates � the same low interest rates that are making it difficult for an increasing number of older folks to generate enough fixed income for a comfortable retirement. The relief might help debt-ridden consumers get into a position to start spending again sooner than they otherwise would, but the borrower�s gain is the saver�s loss.

http://blogs.wsj.com/economics/2010/09/18/number-of-the-week-defaults-account-for-most-of-pared-down-debt/

[keepinitreal]

From the WSJ Comments Section:

Dr. Goose wrote:
US consumer debts’ lightening
Has been thought to result from belts’ tightening,
But those falling exposures
Have tracked loan foreclosures,
Which leads to conclusions more frightening.

[AngelinaCatHub]

Keepinitreal:

Your copy does not say much for the American people, and although factual, attitudinal. The injected author's opinion that "U.S. consumers might not be quite as virtuous as they seem." strikes a sour vein with me.

Consider the fact that our Central Government "Bammynomics" and Barney Frank and associates blew up the home value system. Seducing those who could not afford the house they lusted after and when the note changed the house went upside down. Many people mistakenly assumed a house was an investment. It worked for many older generations who by the time they retired, had a paid for house up North, came down south where housing traditionally was cheaper, and retired on their pensions and SS.

Those Americans who are defaulting, just may not be paying their bills since they don't have jobs. Unemployment Compensation doesn't get you much but food and essentials. Why is it that we have such unemployment? Due to 'Bammynomics, business uncertainty of future taxes and regulations have stalemated growth, ergo they don't need or will do without the extra employee. Attrition in employment is not being replaced.

Those on fixed incomes by percentage of their savings are finding due to the stock market losses that that percentage has become far lass than planned. They cannot even get a job due to age, and Walmart only needs so many greeters. It is plain to see even if blind what is going on here, and yes it started with the Bush administration as those rascals with an "R" by there name is no better than the rascals with a "D" by theirs. The difference is, we now have a Ruler, not a leader. His honesty abounds in only one way. It is his way, or no way and he is hell bent on improving this Country into another Kenya, and less than two years in office has done a fine job of bringing our status in the World into the mud.

It is no longer "Bushes Fault" and that chime is getting old. The Captain of this ship now is Obama who, by pointing the finger away from himself, is the first one to abandon this sinking ship U.S.A. in rhetorical terms of the damage being done to it every day by his intent determination of getting even with capitalism.

You have not seen anything yet. Not only has our economy gone under, the real damage is not being noted by the mainstream press. Look around your own County. Take a Sunday drive with your family (if you can afford the gas) [not being personal, being objective to our times], and see the amount of closed shops and empty houses. Look at the real estate adds. Count the "bank owned" for sale signs.

Once our inflation starts, it usually takes a year, those on fixed incomes will truly be eating pet food. Food prices are going up now as the Mrs. tells me. I don't shop, but I see fuel going up for no reason now, except that we cannot drill for six months or open new wells in our Country, but we pay other countries to do so in our own back yards. What's with this?

Otherwise, I enjoyed your copied article. LOL. 'Hub

[catleg]

The article posted is from the fascist pro-bankster WSJ. No surprise that there should be an anti-serf attitude there.

[keepinitreal]

Those Americans who are defaulting, just may not be paying their bills since they don't have jobs. Unemployment Compensation doesn't get you much but food and essentials. Why is it that we have such unemployment? Due to 'Bammynomics, business uncertainty of future taxes and regulations have stalemated growth, ergo they don't need or will do without the extra employee. Attrition in employment is not being replaced.

That's certainly the reason my debt is so much less than a year ago. Unemployment, then Chapter 7.

Everybody, remember when the media trumpets that the average debt is going down, it's not because of positive things happening.

[AngelinaCatHub]

That's certainly the reason my debt is so much less than a year ago. Unemployment, then Chapter 7.

Everybody, remember when the media trumpets that the average debt is going down, it's not because of positive things happening.

Boy you got that right. Also unemployment is down also. Once your UC runs out, and you STILL can't find a job, you are no longer counted, therefore, you're not unemployed, your not even a statistic in this government. Thus sayeth our ruler. 'Hub

P.S. you ARE still a tax payer.

[catleg]

Just FYI, the unemployment stats have been cooked since the JFK years, and the inflation (and thus SS cost of living increases) stats have been cooked since something called the Boswick commission. Check this out:

http://www.youtube.com/watch?v=zsNgJVD8KgY

[ccsjoe]

One more thing to add to unemployment count. Not only are the unemployed whose benefits run out no longer counted, the underemployed are also not counted...those who are able to take a part time job because no full time is available and desperately need to put food on the table.

[WhatMoney]

One more thing to add to unemployment count. Not only are the unemployed whose benefits run out no longer counted, the underemployed are also not counted...those who are able to take a part time job because no full time is available and desperately need to put food on the table.

Actually they ARE still counted and always have been. They just move to another broader category of the unemployed. There is no conspiracy to hide the unemployment rate - you just need to understand what to look for. Hint: Google U1 U6 and BLS.
Another hint: http://www.bls.gov/news.release/empsit.t15.htm

And you are incorrect to say the national unemployment rate does not include workers once they lose their state unemployment insurance. These workers are surveyed each month by other means. This myth of the unemployed not be in the U4, U5, and U6 numbers comes up on this board every few months. It has been discussed (mostly be me) in eye glazing detail elsewhere on the bkforum.

[WhatMoney]

I would point you to the many threads where I have explained exactly how the national unemployment numbers are calculated by the Bureau of Labor Statistics. It is not as simple as you think, nor is it a giant conspiracy either. It is frustrating to see the same characters posting this myth when they have been here long enough to know better.

But alas there are, I am finding, vast portions of these boards where the posts are still missing after last week's crash. I looked in the Unemployment Sticky, where I thought I posted about the U1-U6 calculations and I can't find my threads. What I did find was 3 month blocks of no posts at all in the last year, 6 months of missing posts in one year. I suppose mine were in there. And the Search function cannot come up with any hits either. I'm tired of re-posting long complex posts again and again after the board destroys them. So, figure it out on your own, or hope someone else comes along that is willing to look into the details and spend the time to post them here. It's no skin off my back what anyone thinks, right or wrong.

[banca rotta]

You are right as usual Whatmoney. The National Bureau of Economic Research declared yesterday that the recession ended in the summer of 2009.

For those that refuse to believe such truer words I say "Let them eat cake"!

I'm not really sure why the fed just announced a few minutes ago why they need to print more money if we have been in recovery for just over a year.

I guess they all know what they are doing.

[WhatMoney]

You are right as usual Whatmoney. The National Bureau of Economic Research declared yesterday that the recession ended in the summer of 2009.
I'm not really sure why the fed just announced a few minutes ago why they need to print more money if we have been in recovery for just over a year.

I guess they all know what they are doing.

Of course the NBER is a private non-profit organization, and has nothing to do with the U.S. government. The NBER has been calling the start and end of recessions for many years. They have been accurate on calling the start of a recession (12/07 for this last one), and in retrospect have been close on calling the ends, always a trickier task.

They look at troughs in economic data, and unemployment is only one of 10 indicators they use. Unemployment has traditionally always been the last thing to recover - sometimes taking years after the end of the recession. For those who are gainfully employed and see their companies start new hiring, the recession is over. For those that don't have the skills, or are too old, or are in dead industries in the US, the recession will never be over. Wall Street is doing great right now, and the northeastern US is in a recover including lower unemployment.

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.

The committee designated June as the month of the trough based on several monthly indicators. The trough dates for these indicators are:

Macroeconomic Advisers’ monthly GDP (June)
The Stock-Watson index of monthly GDP (June)
Their index of monthly GDI (July)
An average of their two indexes of monthly GDP and GDI (June)
Real manufacturing and trade sales (June)
Index of Industrial Production (June)
Real personal income less transfers (October)
Aggregate hours of work in the total economy (October)
Payroll survey employment (December)
Household survey employment (December)

Note that only the last indicator the NBER uses is a measurement of unemployment.


A long discussion (rationalization) of their latest decision is here:
http://www.nber.org/cycles/sept2010.html

[banca rotta]

Whatmoney A lot of what you are saying is true if we were back in the 70's when we had a much larger manufacturing base.

Back when we were the manufacturing super power before the dem and their evil twin repubs destroyed it you had factories lay workers off when things slowed down, the factories would work off their inventories, then hire them back and we would be in recovery.

Today when the malls, shopping centers, outlets, other consumer spending and easy credit make up 70% of the economy there is NO WAY we can recover with such high un & underemployment.

Even those that are employed are pretty scared to spend money which is adding to the problem.

The point being there cannot be a recovery as long as a nation of consumers have no jobs, no credit, no disposable income.

[WhatMoney]

Whatmoney A lot of what you are saying is true if we were back in the 70's when we had a much larger manufacturing base.

Back when we were the manufacturing super power before the dem and their evil twin repubs destroyed it you had factories lay workers off when things slowed down, the factories would work off their inventories, then hire them back and we would be in recovery.

Today when the malls, shopping centers, outlets, other consumer spending and easy credit make up 70% of the economy there is NO WAY we can recover with such high un & underemployment.

Even those that are employed are pretty scared to spend money which is adding to the problem.

The point being there cannot be a recovery as long as a nation of consumers have no jobs, no credit, no disposable income.

Hold on you your hat banca, I pretty much agree with you.

However the recessions and recovery cycles will continue - but there will be fewer Americans that benefit from a recovery than in the past. The US had recessions, depressions, and boom times since the start of the country, but up until about 1946, the middle class was much smaller, and a majority of Americans were living in what today we call poverty. I remember the 40's and 50's. Family home was 800 sq ft. One car, shared between everyone. One TV, if you could afford one. One telephone, wired to the wall for the entire family. Only the rich had swimming pools or vacation homes, or fancy boats and RV's, or motorcycles, or separate bedrooms for their kids.

The 70% of Americans who stop at high school today thinking they will find a good paying job with no special skills, like their father or grandfather, are looking at a dim future. And unless they choose their college or technical school career area very carefully, assuming they can afford it, they will still be among the working poor in the future.

China and India produces 1000 engineering PhD's for every 50 American PhD engineers. If you were a company looking to hire 50 PhD engineers where would you look? In the U.S., you would choose from a limited pool of engineers who expect to start out at six figure incomes. In China you can choose the best 50 of the 1000, and pay them $15,000/yr. There is no way the US can compete with the world labor force. They have all caught up since WWII and are now whipping our a$$.

Too many people and a small world. No solution short of nuclear war or mass genocide. Otherwise the middle class will just have to downsize to join the poor, and the upper class will keep getting richer as always. That's been the historical trend forever. Capitalism breaks down when there are more workers than jobs. Get used to it.

[jacko]

Are you for real? That is so teabagger speak written by faux news. Barney Frank did no such thing and POTUS has not been in office for long.

Its greed that caused the meltdown. You know, the ones who used their home as a ATM, not saving for later and being financially irresponsible. Plus the deregulation of the banks and the greed by the mortgage under writers who gave anyone a home loan in order to receive the commission. Last I heard Canada is doing quite well economically considering they have regulated banks and single payer.

Lets unshackle the worker bees from their miserable jobs by unshackling their health care insurance BS that keeps them there due to our non existent safety net and allow them to be entrepreneurs which would allow the unemployed to replace them.

Keepinitreal:

Your copy does not say much for the American people, and although factual, attitudinal. The injected author's opinion that "U.S. consumers might not be quite as virtuous as they seem." strikes a sour vein with me.

Consider the fact that our Central Government "Bammynomics" and Barney Frank and associates blew up the home value system. Seducing those who could not afford the house they lusted after and when the note changed the house went upside down. Many people mistakenly assumed a house was an investment. It worked for many older generations who by the time they retired, had a paid for house up North, came down south where housing traditionally was cheaper, and retired on their pensions and SS.

Those Americans who are defaulting, just may not be paying their bills since they don't have jobs. Unemployment Compensation doesn't get you much but food and essentials. Why is it that we have such unemployment? Due to 'Bammynomics, business uncertainty of future taxes and regulations have stalemated growth, ergo they don't need or will do without the extra employee. Attrition in employment is not being replaced.

Those on fixed incomes by percentage of their savings are finding due to the stock market losses that that percentage has become far lass than planned. They cannot even get a job due to age, and Walmart only needs so many greeters. It is plain to see even if blind what is going on here, and yes it started with the Bush administration as those rascals with an "R" by there name is no better than the rascals with a "D" by theirs. The difference is, we now have a Ruler, not a leader. His honesty abounds in only one way. It is his way, or no way and he is hell bent on improving this Country into another Kenya, and less than two years in office has done a fine job of bringing our status in the World into the mud.

It is no longer "Bushes Fault" and that chime is getting old. The Captain of this ship now is Obama who, by pointing the finger away from himself, is the first one to abandon this sinking ship U.S.A. in rhetorical terms of the damage being done to it every day by his intent determination of getting even with capitalism.

You have not seen anything yet. Not only has our economy gone under, the real damage is not being noted by the mainstream press. Look around your own County. Take a Sunday drive with your family (if you can afford the gas) [not being personal, being objective to our times], and see the amount of closed shops and empty houses. Look at the real estate adds. Count the "bank owned" for sale signs.

Once our inflation starts, it usually takes a year, those on fixed incomes will truly be eating pet food. Food prices are going up now as the Mrs. tells me. I don't shop, but I see fuel going up for no reason now, except that we cannot drill for six months or open new wells in our Country, but we pay other countries to do so in our own back yards. What's with this?

Otherwise, I enjoyed your copied article. LOL. 'Hub