Paul Volcker
let loose his own personal can of whoop-ass at a Federal Reserve of Chicago event, Thursday, and (IMHO) it really should serve as a major warning to all that even remotely follow our economy to realize that
any discussion of a technical recovery means little -- next to nothing IMHO -- especially when one bothers to look a little more closely at all of the
truthiness,
"proofiness" and
"disestimation" that's being put forth by our Wall Street-driven MSM and the powers that be, even
here in the blogosphere.
Personally, it never fails to amaze me how willingly our government, the MSM and voters never miss an opportunity to fall for the ongoing NY-DC kabuki as it relates to our status quo and the economy. Indeed, as much as I hate to say it, we really are a bunch of
chumps when it comes to how we react to what we read, hear and see about all things economic these days, as the "sweet nothings" and blatant
lies (more about those, down below) whispered by the corporate kleptocrats in our ears--another veritable round of economic
foreplay, as it were--continue.
And, we all know what happens after foreplay, right?
So, here's my late Friday effort at putting some inconvenient truth to power. Because when everything's said and done, the truth about our economy isn't Republican or Democratic.
It just is. (And, IMHO, there are many inconvenient economic truths staring us in the eye which, for the most part, are far worse than most of our citizens may realize.)
If for no other reason than to better identify with our country's current problems on Main Street, IMHO, it's time Democrats put a lid on these "Delusions of Recovery" memes, once and for all. And, as you'll learn below, that may just be what's happening before our very eyes now, too.
As I noted in my March 9th, 2010 diary, here's Simon Johnson's blogging bud, James Kwak, paraphrasing Barney Frank, from 2009:
Of course, none of this will matter in the end because, as someone (Barney Frank?) said, you can't get elected saying things would have been even worse without you.
Are Democrats finally getting a clue? Or, will the mixed messages, complete with an ongoing stream of "happy news," interrrupted by intermittent "hippie-punching" from some in our party, continue to alienate voters and create more Party divisiveness come mid-terms? (From Brad DeLong, yesterday: "The Obama Administration Goes Off-Message Again...")
Here, if you follow me below, are some inconvenient truths about our economy. IMHO, it's a healthy thing that at least we're starting to hear more about these realities from our own Party (in some cases, again). That being said, I'll start matters off with someone who isn't really considered to be part of "our" party, but a person who pulls no punches when it comes to telling it like it is about our economy, nonetheless...
VOLCKER...
Late yesterday afternoon, Damian Paletta, over at the Wall Street Journal blog, provided a pretty good summary of Volcker's comments, and you may read about it right HERE. Here's Barry Ritholtz, over at the Big Picture, parsing the assessment of others as far as Volcker's commentary was concerned: "Volcker: Financial System Still at Risk."
Volcker: Financial System Still at Risk
By Barry Ritholtz - September 24th, 2010, 7:25AM
...Fed Chair Paul Volcker ditched his prepared remarks at a Federal Reserve of Chicago event yesterday. In its stead, he opened fire on all of the corruption in banking and Wall Street.
It was a "blistering, off-the-cuff critique leveled at nearly every corner of the the US financial system."
Volcker unloaded on banks and CEOs; he trashed regulators and the inept business schools. He opened fire on the Fed, bombed money-market funds. And while he had good things to say about the financial overhaul law, the bottom line is the system remains at risk.
Rather than subject us to future "judgments" of regulators -- all subject to capture by "relentless corporate lobbying by banks and politicians to soften the rules."
Volcker made a plea for "structural changes in markets and market regulation..."
# # #
"PROOFINESS" AND "DISESTIMATION"...
When it comes to our economy: "Don't believe anything you read or hear and only half of what you see." (That's right. All I ask is that you click on my links. Do your own research. Then come to your own conclusions.)
Case-in-point: "Proofiness." It's one of the latest new, cool words circulating among the intelligentsia these days. So, you might ask: What is proofiness? Well, it's the first cousin of a word originally made popular by Steven Colbert on his very first show, in 2005: "truthiness."
Here's where I just learned about "disestimation" and "proofiness," "Fibbing With Numbers."
Fibbing With Numbers
By STEVEN STROGATZ
New York Times Review of Books
September 18, 2010
Charles Seife is steaming mad about all the ways that numbers are being twisted to erode our democracy. We're used to being lied to with words ("I am not a crook"; "I did not have sexual relations with that woman"). But numbers? They're supposed to be cold, hard and objective. Numbers don't lie, and they brook no argument. They're the best kind of facts we have.
PROOFINESS
The Dark Arts of Mathematical Deception
By Charles Seife
295 pp. Viking. $25.95
And that's precisely why they can be so powerfully, persuasively misleading, as Seife argues in his passionate new book, "Proofiness." Seife, a veteran science writer who teaches journalism at New York University, examines the many ways that people fudge with numbers, sometimes just to sell more moisturizer but also to ruin our economy, rig our elections, convict the innocent and undercount the needy. Many of his stories would be darkly funny if they weren't so infuriating.
Although Seife never says so explicitly, the book's title alludes to "truthiness" -- the Word of the Year in 2005, according to the American Dialect Society, which defined it as "the quality of preferring concepts or facts one wishes to be true, rather than concepts or facts known to be true." The term was popularized by Stephen Colbert in the first episode of "The Colbert Report." The numerical cousin of truthiness is proofiness: "the art of using bogus mathematical arguments to prove something that you know in your heart is true -- even when it's not."
Seife emphasizes that numbers impress us. They carry authority...
--SNIP--
Falsifying numbers is the crudest form of proofiness. Seife lays out a rogues' gallery of more subtle deceptions. "Potemkin numbers" are phony statistics based on erroneous or nonexistent calculations. Justice Antonin Scalia's assertion that only 0.027 percent of convicted felons are wrongly imprisoned was a Potemkin number derived from a prosecutor's back-of-the-envelope estimate; more careful studies suggest the rate might be between 3 and 5 percent.
"Disestimation" involves ascribing too much meaning to a measurement, relative to the uncertainties and errors inherent in it...
So, let's look at some CURRENT EXAMPLES of economic truthiness, proofiness and disestimation, shall we? (God only knows, there are plenty of examples to be found, all around us.)
When it comes to talk of a RECOVERY, JOBLESSNESS, HOUSING/MORTGAGES, WALL STREET PAYING TAXPAYERS BACK FOR "THE BAILOUT," GROSS DOMESTIC PRODUCT (and "ECONOMIC GROWTH"), and the truth about what really happened to CONSUMER CREDIT over the past couple of years (Wall Street eviscerated credit on Main Street, then they proceeded to put forth the false meme, which they're still doing to this day, that consumers were deleveraging), the reality is that a lot of false memes, to a great extent perpetuated by Democrats as well as Republicans, are now biting Democrats in the ass this election cycle.
Democrats, for want of positive news over the past 18 months, IMHO, ignored realities for the sake of a few good, short-term press opportunities; and, in the process of doing so, grossly distorted the public's expectations, accordingly. But, the truth is that the truth was there, in plain sight, all along. And, instead of dealing with reality, our own party opted for happy news. This also enabled the perpetuation of the Wall Street "recovery" meme, which many, even in this community, still foster to this day.
Given harsh realities in the real world, it should come as no surprise to Democratic opinion leaders (i.e.: many reading this post, right now) that happy news about our economy simply does NOT resonate (well) on Main Street, at least at the moment.
The problem, IMHO, is that there's a great disparity between what people are seeing on Main Street versus what they're hearing and reading, as the "accentuate-the-positive" spin continues to eminate from Washington and New York.
IMHO, for the party in power, that's tantamount to public relations malpractice. One does NOT focus upon incredulous spin when it flies in diametric opposition to the perceived realities of one's audience. I happen to know a little bit about this. And, IMHO, it's a surefire way of losing credibility among those whom you're trying to influence.
Finally, just a few weeks before the mid-terms, we're hearing--once again--a bit more about these inconvenient truths. Meanwhile, they've been common knowledge within our own party all along!
Are Democrats finally getting a clue? Maybe, just maybe, some are.
# # #
THE "RECOVERY"...
ROBERT GIBBS, the chief White House spokesperson and presidential press secretary, mentioned a few inconvenient truths about our "Recovery Summer" at a press briefing on Wednesday, and it ended up only being reported in selected rightwing MSM outlets; elsewhere, not many people took notice. I guess that's a "good" thing in the eyes of some, but the bottom line is, per Robert Gibbs' references on Wednesday, the recovery's going to take "several years." And, as the Congressional Budget Office has already referenced it in their ten-year projections, things won't be returning to normal (2006/2007 unemployment levels) until 2018!
The next time you read, hear or see talk of our "recovery," technical or otherwise, here or in the MSM, please realize that for all political intents and purposes, it isn't going to be noticeable on Main Street anytime soon. Don't take my word for it. Listen to the President's Press Secretary, earlier this week: From Robert Gibbs at the White House, on Wednesday:
Q Robert, on the economy, you said earlier this is going to take an "enormous" amount of time. How long?
MR. GIBBS: Well, I think it's going to take several years from -- I think getting through a recession as deep as the one that we were faced with, the sheer amount of job loss, the shock to the system -- shock to our financial system, the change in our housing market. We're dealing with, in many ways, if you look at what happened and what cascaded downward all at a certain period of time, you're dealing with sort of the perfect storm.
As I said, you've got folks who's lost -- they and their friends have lost their jobs; their housing values had decreased; for a long time the credit market was completely frozen. There are a whole host of things -- it wasn't just one thing that needed to be fixed in order to get the economy moving again. And it took a long time from -- and I don't have the exact figures in front of me -- but if you think about -- I think the job loss, monthly job loss probably started in December of 2007, and it was probably sometime the middle of 2009 or -- I'm sorry, probably toward the end of 2009 where you saw a month in which we added, on the plus side, new jobs.
That's a good two-year period of -- followed -- or having been followed by a whole host of previous bad months before the recession officially began in December of 2007. I just think it's going to take a long time to get out of the hole that we found ourselves in.
There weren't any quick fixes. There aren't any silver bullets. If there were, we would have done so.
I think that speaks to the frustration of what people are feeling. If you could hit a button or flip a switch or make something happen overnight, you certainly would do that. The problems that we face were long term, they were systemic, and they're going to take some time.
Q Robert, could I follow up on that?
MR. GIBBS: Sure.
Q The CBO has -- just on that same note, the CBO has projected that unemployment will remain above 8 percent until at least 2012. Does the administration have any kind of projections as to when it might go below 8 percent?
MR. GIBBS: I don't know if in the mid-session -- I assume in the mid-session review there are some of those figures. I don't have those in front of me. I don't know.
Yes, sir.
Q Robert, given the frustration that was expressed with the President yesterday, is there anything that the President himself thinks that he may have done wrong on the economy, anything that he would want to take back in his handling of it at this point?
MR. GIBBS: Well, look, I have not asked that question, Keith, of him directly. I know that the President, again, feels the frustration. I think we were probably on a different trajectory sometime in the spring and then things impacted our own recovery from Europe. But I think we have made a series of decisions -- and the President has made a series of decisions -- that while not altogether politically popular were ones that had to be made when they were made.
Q I mean, we used to ask Bush this question a lot. I mean, so no mistakes, he doesn't feel that he's made any mistakes so far in his handling of the economy?
MR. GIBBS: No, no, look, again, Keith, I haven't put this question to him directly. I don't know what he might say to that question. Again, I'd just say this. I don't think he's -- I think he understands that this was going to take some time. There weren't the illusion that somehow, again, this was all going to be better in a very short period of time...
We've been told by many that unemployment is a lagging indicator of a "recovery," but eight years is something quite a bit different than a "lagging recovery," IMHO. In fact, some would argue that isn't a recovery, at all.
# # #
UNEMPLOYMENT...
AUSTANT GOOLSBEE, the new chairperson of the president's Council on Economic Advisors, tells us, when it comes to the government's unemployment percentages, add a point or two to what you're reading and hearing from the government, and you'll be closer to the truth.
The next time you read, hear or see our government's (the Bureau of Labor Statistics') monthly employment situation report, informing us of the most recent jobless and workforce statistics, remember that the new chairperson of the President's Council on Economic Advisors, Austan Goolsbee, has told us, himself, that the numbers are always a couple of percentage points short of the reality. From my diary of March 6th, 2009, entitled: "Goolsbee Explains Why Unemployment Is Actually 17%-18%."
From a seven-year-old New York Times Op-Ed piece by top Obama administration economics advisor Austan Goolsbee, entitled: "The Unemployment Myth."
The Unemployment Myth
By AUSTAN GOOLSBEE
NY Times Op Ed
November 30, 2003
...the unemployment rate has been low only because government programs, especially Social Security disability, have effectively been buying people off the unemployment rolls and reclassifying them as "not in the labor force."
In other words, the government has cooked the books...
Research by the economists David Autor at the Massachusetts Institute of Technology and Mark Duggan at the University of Maryland shows that once Congress began loosening the standards to qualify for disability payments in the late 1980's and early 1990's, people who would normally be counted as unemployed started moving in record numbers into the disability system -- a kind of invisible unemployment. Almost all of the increase came from hard-to-verify disabilities like back pain and mental disorders. As the rolls swelled, the meaning of the official unemployment rate changed as millions of people were left out.
By the end of the 1990's boom, this invisible unemployment seemed to have stabilized. With the arrival of this recession, it has exploded. From 1999 to 2003, applications for disability payments rose more than 50 percent and the number of people enrolled has grown by one million. Therefore, if you correctly accounted for all of these people, the peak unemployment rate in this recession would have probably pushed 8 percent.
The point is not whether every person on disability deserves payments. The point is that in previous recessions these people would have been called unemployed. They would have filed for unemployment insurance. They would have shown up in the statistics. They would have helped create a more accurate picture of national unemployment, a crucial barometer we use to measure the performance of the economy, the likelihood of inflation and the state of the job market.
...The situation has grown so dire, though, that we can't even tell whether the job market is recovering...Despite the blistering growth of the economy, the invisible unemployment problem continues...
So, here we have Mr. Goolsbee, one of the most influential economic advisors in the Obama administration, telling us that, during a time of significantly lower unemployment, around six or sevenx years ago, one would have to add a good two percentage points to the government's unemployment numbers to account for those "invisibly unemployed" due to the reality that they had just filed disability claims with the government.
This segment of the population (and workforce) is completely missing from both the BLS' U.3 and the U.6 numbers...
# # #
GROSS DOMESTIC PRODUCT (G.D.P.)...
NOBEL PRIZE-WINNING ECONOMIST JOSEPH STIGLITZ -- someone whom I view as a living hero and equivalent in historical importance to our global society in this century in much the same manner that Albert Einstein was viewed in relation to the 20th Century -- has been at the forefront of a global effort to redefine socio-economic metrics with regard to how our we measure output, growth, and basic quality of life, in general.
This article, from Newsweek, "Chasing Stiglitz," covers Stiglitz' efforts on the international stage, on this ongoing issue, among many other topics. And, I think you'll find it's a fascinating read, too. In this piece, you'll learn that there's a widely-held belief that the current measurement in use for these metrics today, G.D.P., (to use an advanced economic term) sucks.
IMHO, if there's a poster child for government-supported metrics as they relate to truthiness, proofiness and disestimation, and general inaccuracy, our nation's gross domestic product statistics--ironically the measurements that many economists would also reference as being the most critical--would take the award for being most misleading, hands-down.
The next time you read, hear or see a new, first-draft report of our nation's Gross Domestic Product (results), chances are, if history is any guide, it'll be subject to significant revisions--of late, usually, those will be very significant revisions--over the following couple of months, at the very least.
Other than what I mention, above, I'm not going to do much of a dive into this particular topic, at least within this diary, in large part due to the fact that I've discussed this subject in great detail in numerous other diaries; most recently, RIGHT HERE.
Other recent diaries that I've posted concerning the inherent problems with how we currently measure G.D.P. may be accessed HERE, HERE, HERE, and HERE.
But, if you're going to bother to click through to the links on any articles on this topic, I'd strongly suggest you checkout this piece from last November in the NY Times, by Louis Uchitelle, first: "Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor."
# # #
THE "WALL-STREET'S-REPAID-THE-BAILOUT" MYTH...
CNN, Former Goldman-Sachs Director and Author NOMI PRINS, and KOSSACK GJOHNSIT, along with yours truly and many others have, time-and-time-again, put to rest the TOTALLY FALSE meme that, somehow, miraculously, Wall Street has paid back taxpayers for the TRILLIONS of dollars in subsidies that our government has provided--and continues to provide--to these fatcats to this day.
The next time you read, hear or see our government talking about "Wall Street repaying U.S. taxpayers," just direct them to these links, which demonstrate that trillions of dollars in welfare for the rich remains outstanding as we blog.
Here's CNN's "Bailout Tracker," and here's the more updated Nomi Prins' "Bailout Tallies" reports.
And, from early March, here's a link to Kossack gjohnsit's takedown of the "Wall-Street's-repaid-the-bailout" myth: "The most expensive bailout of all, and no one is talking about it."
Last but not least, here's one of the more egregious examples (and still ongoing stories) regarding the "Stealth Monetization in the U.S.A.." In essence, what our government has created (for Wall Street's benefit) is a system to prop up its balance sheet which, as a byproduct of same, assures Wall Street of scores of billions of dollars in free, easy, taxpayer-funded cash every year, too. The Cliff Notes version of the deal: Banks borrow from the Fed at close to 0% interest, and they use those funds to buy U.S. T-bills and related paper, all paying 2% and 3% (and more) interest. Stating the obvious, this effectively disincentivizes Wall Street from taking on risk within the general population, too. (See "Main Street Credit," farther down the blog, for more on this.)
Very much dovetailing with the story, immediately above, is the ongoing crash and burn that's occurring in our housing/mortgage sector.
# # #
REAL ESTATE/HOUSING/MORTGAGES...
AMERICAN BANKER MAGAZINE, a veritable bastion of the Wall Street meme, had a rather terrifying article in its September 20th edition. And, sadly, IMHO, it's 100% accurate.
The next time you read, hear or see about how our housing/mortgage market is "stabilizing," even when it's coming from someone whose opinion you may respect, tell them to take a look at this: "Why Writedowns on Second Mortgages Are So Scarce."
And, also show them this: "Housing Isn't Close To Stabilizing."
The long and the short of it is that more than half of all mortgageholders will be underwater (owing more on their homes than they're worth) by 2011. That is what's about to happen if home values drop another 5%, nationally. And, that's all but assured to occur between now and year's end. I posted a piece on these truths less than a month ago: Is The U.S. Residential Housing Market Collapsing, Again?
The American Banker article gets to this realization, albeit in a bit of a roundabout manner, too. (You have to have a paid subscription to the magazine to access the story, so here's a summary.)
Why Writedowns on Second Mortgages Are So Scarce
American Banker Magazine
September 20, 2010
..."Home equity is the giant elephant in the room and everybody knows it," said Anthony Sanders, a finance professor and director of the Center for Real Estate Entrepreneurship at George Mason University.
Observers say fallen home prices and evaporated equity mean that those borrowers who today are still paying their second mortgages on underwater properties may soon join the ranks of those who aren't.
And if house prices fall further -- as many economists are predicting -- more borrowers will slip into negative equity, making defaults even more likely, all other things being equal.
Roughly 23% of mortgage borrowers owed more than their homes were worth in the second quarter, and another 28% had "near negative equity" in their homes of 5% or less, according to CoreLogic, an analytics firm.
Obviously, what this means is the number of folks slipping into "underwater" status will, almost certainly, double in the next few months.
The article continues on to tell us that: "...the top four banking companies -- Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., and Wells Fargo & Co. -- have charged off 19.9% of $79.7 billion in junior liens, and 8% of $353.9 billion in home equity lines, according to call report data."
We're informed that these four megabanks, alone, hold $423 billion in home equity loans, with $151 billion of those loans associated with homeowners that are already or underwater, or "close to it."
Banks are required by regulators to charge off loans after 180 days of nonperformance, according to the Fed and the Office of the Comptroller of the Currency, which supervises large banks that service 65% of all mortgages.
A bank does not have to classify a home equity loan if the value of the property has dropped, said Bryan Hubbard, an OCC spokesman.
But Cole and others argue that banks ought to reassess the underlying credit quality of loans and account for problem credits if the collateral has changed. "Regulators have the power to force the banks to reserve against these loans, but choose not to do so," he said.
Bold type is diarist's emphasis.
American Banker points out that "...banks are loath to take losses on performing loans even if the value of the home has dropped 30% or more and a default is likely.
It concludes that regulators "...are complicit in looking the other way..."
If the housing marketplace drops another 5% in price, which most say it will, rougly half of all mortgage holders in the U.S. will be underwater by early 2011.
Like so many other inconvenient facts which many Democrats have been ignoring, this isn't new information. Much to the chagrin of some in this community, I've been writing about it for over 18 months. That's because both DeutscheBank and Barclays both projected this in early 2009!
Despite those truths, the U.S. public and the folks in D.C., never mind Wall Street, are still unprepared for the brutally adverse affect this latest economic development is going to have on our society in coming months.
At the risk of being accused of redundancy, I would strongly encourage those wishing to know more about where the U.S. housing/mortgage situation is heading to read this: "Is The U.S. Residential Housing Market Collapsing, Again?"
And, in quite related coverage, here are two more reads from just earlier today, over at Calculated Risk:
New Home Sales: Unchanged from July, Worst August on Record (And, just 6,000 units above the all-time series record, which was just established three months ago, in May.)
Home Sales: Distressing Gap
# # #
MAIN STREET CREDIT (CONSUMER AND SMALL BUSINESS CREDIT)...
THE PUBLIC has been no less than completely and deliberately misled, by both Wall Street and our government, as well as the MSM and even some in the blogosphere, as far as our true understanding of the extent by which Main Street has had access to credit eviscerated by Wall Street.
The next time you read, hear or see the monthly governmental reports about the level of consumer credit dropping by a few billion here, or five or ten billion there, please realize that this is, virtually entirely, a Wall Street-created meme about consumer "deleveraging." (Actually, it's a Federal Reserve-created meme, to be more precise.) While technically accurate, it only tells us a very small portion of what has actually happened--and is still happening--as far as the ongoing evisceration of small business and consumer credit on Main Street is concerned.
First off, here are a couple of examples of the typical proofiness meme you've been reading, hearing and seeing in the MSM over the past couple of years. This one's from MSNBC: Consumer borrowing plunges by $15.7 billion.
And here's another example of how this misdirecting meme is furthered throughout our society; this time, from Calculated Risk, from October 2nd, 2009: "Consumer Credit Declines Sharply In August." It's a story taken from the Federal Reserve's monthly G18 and G19 reports. And, in this instance, it tells us that consumer credit declined by just under $12 billion in August 2009.
What the reader isn't being told, however, is that this is simply a story of UTILIZED consumer and small business credit (the amount of credit actually used by the public). It tells us nothing as far as what's happened/happening with regard to the AVAILABLE CREDIT LINES in the small business and consumer marketplace. In other words, utilized credit is simply the amount (in dollars or in percent) of credit outstanding as a numerator over the denominator, which is total credit available (in dollars or in percent) to the small business and consumer public.
Thinking of it in personal terms, if you have a credit card with a $25,000 credit line on it, and you have an outstanding balance of $5,000 on the card, you've utilized $5,000, or 20% of your available $25,000 (100%) credit line.
From my post here on DKos on October 8th, 2009 (just a couple of weeks shy of one year ago):
More Gov't, Wall St. And MSM Lies: Consumer Credit, Savings
bobswern
Daily Kos
October 8, 2009 7:57:57 AM
...This is what REALLY happened...
Since the "Great Recession" started, the too-big-to-fail Wall Street firms have already cut consumers' credit lines by $1.25 trillion. (Remember what I told you, a few paragraphs above, in terms of what we've been seeing playing out on Main St.?) And, these are the same lines being used by all those mom-and-pop small businesspeople out on Main Street, as well. From, arguably, the leading and most prescient stock and consumer credit analyst on Wall Street, Meredith Whitney: "The Credit Crunch Continues..."
(Apparently, over the past year, the Wall Street Journal blog changed the location of this Ms. Whitney's story to points unknown. So, the link I maintained to it in my original diary no longer functions.)
At this point in my diary from last year, I went into a detailed description of what happens to a consumer or a small business owner when a credit card company decreases their credit line, thus increasing the small business owner's and/or consumer's rate of credit utilization. Generally speaking, their credit score drops. (If you're interested in the slightly more wonkish details on this, simply click on over--link provided above--to my diary from last year. I'm sure you'll find it enlightening.)
Now, here's the REAL story, sans "proofiness," from highly-respected Wall Street analyst, Meredith Whitney: "The Consumer's Credit Card Capacity Collapse; R.I.P. U.S. Middle Class Purchasing Power"
The Consumer's Credit Card Capacity Collapse; R.I.P. U.S. Middle Class Purchasing Power
Zero Hedge 11/24/2009 23:34 -0500
Even as the government has taken on leadership roles in virtually every segment of the financial and corporate arena, and we see the impact of excess central bank liquidity every single day not in pass-thru lending by the major commercial banks, but in the price of Amazon stock which is now trading at Strong Conviction Lunatic Buy levels, there is yet one segment that the government is powerless to manipulate, no matter how hard CNBC tries (with its constantly declining audience each month the administration could have chosen a more popular medium to brainwash the masses). And, unfortunately for Obama, it is the one segment that is critical to this economy improving: the US consumer, which until recently accounted for 75% of America's GDP, and by implication, almost a third of world GDP.
The recurring problem: continued massive credit contraction - seen every month not only in the government's G.19 report, but direct from the horse's mouth: the big credit card companies. The most recent picture is indeed gloomy. After total unused credit card lines peaked at $4.7 trillion in Q2 2008, the number has plunged to $3.5 trillion: a $1.2 trillion evaporation of consumer purchasing power. The flipside- utilization rates continue to rise as the actual amount borrowed on credit cards is also declining, but a much slower pace. According to the FDIC's just released report, there was $784 billion borrowed between credit card loans and securitization receivables. The U.S. consumer is not only retrenching, but banks continue to limit credit card purchases, which further constrains spending, creating a vicious deleveraging, and thus deflationary, loop.
We present data by bank for the four main credit card institutions as well as for the entire credit card lending segment in its entirety.
We learn that Bank of America cut 37% of their available credit card lines, down to $572 billion, from a Q2 '08 peak of $914 billion.
CHART: Bank of America Credit Card Commitment and Utilization Rate
At Citigroup, lines were cut down to $815 billion from a peak of $1.13 trillion.
CHART: Citi Credit Card Commitment and Utilization Rate
At JPMorgan Chase, 26% of all consumer and related small business credit lines were cut, down to $584 billion from a peak of $785 billion.
CHART: JPM Credit Card Commitment and Utilization Rate
And Discover dropped lines down to $174 billion.
CHART: DFS Credit Card Commitment and Utilization Rate
Combining the "Big 4" demonstrates just how badly the credit contraction has impacted the major banks, which are obviously in cash hording mode, and are making life for the average consumer that much more difficult as utilization rates are forced to increase (presumably at higher accompanying rates and fees) while overall unitilized capacity collapses.
CHART: "Big 4" Credit Card Commitment and Utilization Rate
Expanding this analysis to the entire credit card industry demonstrates a comparable trend: utilization rates have hit history highs at over 18% while the total CC commitments have dropped, as noted above, from $4.7 trillion to $3.5 trillion.
CHART: Total Credit Card Commitment and Utilization Rate
And, readers should realize this was just a reference to the period from mid-2008 through Q3 '09! As Meredith Whitney informed us (over at the WSJ) at the time:
Considering that $1.2 trillion has been cut since 2Q08, we believe that by the end of 2010, $2.7 trillion of lines will be expunged from the system. We believe unused lines will be reduced by $2 trillion, to an estimated $2,700B by 4Q09, and nearly $2.7 trillion to an estimated $2,011B by 4Q10. Concurrently, we believe the utilization rate will increase from 17% at 4Q08 to 23% by 4Q09 and 30% by 4Q10.
That's a projected evisceration of Main Street by Wall Street of approximately 50% of all available credit lines!
Meanwhile, the MSM and the Federal Reserve have been putting forth the meme, during this entire time, of consumers and small businesses "deleveraging."
If one realizes that the maximum loss rates of most TBTF consumer credit portfolios during this same period were topping out in the 15% range (of course, there were a few exceptions to this ceiling, but most consumer credit portfolio loss rates have been significantly less than 15% during this time period).
So, in response to Main Street's declining economic fortunes over the past couple of years, Wall Street pulled the draconian move of stripping roughly HALF of all consumer and small business credit during this same period.
That's proofiness, truthiness and disestimation all in one fell swoop!
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Diarist's Notes: First of all, thanks for your time! (I know this was one of my lengthiest posts...ever!)
While I cite many examples of economic truthiness, "proofiness," and "disestimation" as it relates to a myriad of metrics and matters affecting our perceptions of our economy, this diary is far from complete in that regard.
For instance, I barely touched upon the virtual refusal (at least up until the past few months) of many in the MSM and the blogosphere to even discuss the self-evident inventory/"overhang" issues as they relate to our country's brutal housing/mortgage nightmare (although many links, herein do address those matters), and I don't spend much time addressing Wall Street accounting shenanigans, which are at the heart of much of the financial sector's hanky panky leading up to our country's financial crisis, too.
Additionally, I didn't even begin to mention numerous other converging economic emergencies as they relate to many other problematic matters concerning our country's economy, such as: China's failure to address it's ongoing efforts relating to its absurdly low valuation of its remnibi and our country's concurrent/related/interwoven foreign trade imbalances, as well as the current (and very much ongoing) commercial real estate nightmares, to name just a couple of categories left untouched in my post. But, hopefully, I've provided those that have read this diary to this point with enough information to spur on discussion in the comments, below.
And, finally, I didn't get into the truthiness, proofiness and disestimation issues that are swirling around the latest issues facing our government, voters, and our society in general, such as: a.) the ongoing, now-record-breaking disparity between our society's have and have-nots, b.) rationalizing potential cuts to Social Security and Medicare, c.) the deficit hawks versus the Keynesians on economic philosophical issues versus strawman b.s. and false flags, and d.) maintaining Bush's tax cuts for the middle class versus sound budgetary reasons as to why we should elminate similar Bush tax cuts for the wealthy, and so on, to name just a few.
But, I know that (regrettably) as long as there's no significant campaign finance and lobbying reform implemented in our government, and as long as the current SCOTUS ruling on Citizen United v. Federal Election Commission is allowed to stand, as is, there'll be plenty of time, going forward, to address those matters (and I have addressed ALL of the above issues in other diaries up until now, in any event).
Oh, one other note: if you're going to flame away, at least do so intelligently, for the sake of sane discourse, if nothing else. In advance, thanks for that!