Good News at Last?

[sutro]

This story says that overall (public and private) US debt is dropping fastest pace since the 1950's.

http://www.marketwatch.com/story/us-...50s-2012-06-08

[c1ue]

Re: Good News at Last?

The problem, of course, is that the US economy today does not in any way resemble the US economy of the '50s.

I would not be surprised if the 'falling' debt is mostly a result of bankruptcy and tight credit as opposed to repayment. Certainly incomes show no increases in ability to repay.

[sutro]

Re: Good News at Last?

But its a good trend? Maybe needs to happen faster? Are these numbers factored into KA-POOM?

[c1ue]

Re: Good News at Last?

I'd say the reason for the behavior is just as, if not more important, than the short term behavior.

The fall in consumption that we've seen in the aftermath of the RE bubble, plus the very slow rise in the 'recovery', does not indicate to EJ that this is a typical recovery in which the 'normal' economic trajectory of the US is going to resume after a brief hiatus - even though the trend is positive.

The fall in ostensible consumer debt and corporate debt is also not directly a sign of anything - if it is because of banks not lending and/or bankruptcy as opposed to repayment due to increasing income.

Let me put it another way: how does the 'fall' in debt compare to the fall in employment? Which one has fallen further and faster?

[sutro]

Re: Good News at Last?

Maybe more bankruptcy to quickly resolve debt and move on is a good thing? As opposed to the zombie bailouts? Surely the unemployment numbers show there is along way to go and the troubles with JP Morgan and MF Global show there is the same systemic risk, moral hazard and miss-allocation of resources inherent in the FIRE economy.

[c1ue]

Re: Good News at Last?

Maybe more bankruptcy to quickly resolve debt and move on is a good thing? As opposed to the zombie bailouts? Surely the unemployment numbers show there is along way to go and the troubles with JP Morgan and MF Global show there is the same systemic risk, moral hazard and miss-allocation of resources inherent in the FIRE economy.

I heartily agree on principle, but I personally don't see any signs whatsoever that the zombie bailouts have ended.

As for bankruptcy to resolve debt - once again, it is all relative. Even in article above which says: 'debt falling at the fastest pace' also says:

Cecchetti and his co-authors found that growth can be impaired once nonfinancial corporate debt hits about 90% of GDP, or when household debts hit 85% of GDP, or when public debts hit about 85%.


In the U.S., household debt has now fallen to 84% of GDP from a peak of 98%. Nonfinancial corporate debt has fallen to 77% from a peak of 83%. Financial sector debt has plunged from 123% of GDP to 89%. Public debt has risen to 89% from 56%.

So household debt fell 14% of GDP, but is still at/near bad levels according to Cechetti et al.

Equally non-financial corporate debt has fallen 6% of GDP - not at 'bad' level according to Cechetti either before or after the fall.

Financial sector debt has fallen 34% of GDP and public debt has increased 33% of GDP.

If this doesn't read as socialization of losses, I don't know what does.

[don]

Re: Good News at Last?

I personally don't see any signs whatsoever that the zombie bailouts have ended.

QE is at least in part a zombie bank bailout, ergo . . .