Category Archives: US Debt

Flash Point: How Is the American Consumer Doing?

We received a link to a special report at Comstock Partners: The Deleveraging of the Two Most Outrageous Financial Manias in History. This prompted us to take another look at consumer debt. In Figure 1, we plotted (blue line) total household credit market debt (CMDEBT) – total household mortgage debt (HHMSDODNS) as a percentage of disposable income (TDSP). This represents all non-mortgage debt including credit card debt, student loans and other personal and car loans. It has tripled since 1980. Over the same period, however, the debt servicing cost as a percentage of disposable income has remained roughly constant in the 11-14% range (red line). This is thanks to the fall in interest rates shown in this picture by the Effective Fed Funds Rate (EFFR green line) as a proxy.

Figure 1. Household non-mortgage credit market debt and debt service cost as a percent of disposable income shown with the EFFR. (Click on image to open in a new window)

We suggest that with interest rates near their lower bounds, the consumer cannot take on more debt and maintain a constant level of debt service payment, something that he seems predisposed to maintain at this level.

The figure in the Comstock report, Household Debt Percent Of GDP, shows that the total household credit market debt is decreasing but this as we see above is entirely due to the decline in mortgage debt. The upturn in non-mortgage debt is troubling. We do not see that the consumer will be in a position to raise GDP significantly any time soon.

Portrait of the American Consumer

In this post we take a look at the American consumer. The Consumer Metrics Institute states that the American consumer is currently responsible for 71% of GDP revealing the importance of understanding the consumer’s ability and propensity to spend. Leaving the employment market for another post, we examine the consumer’s income, savings, and debt profiles. We finish with a summary of the consumer’s health and its economic implications. We consider the American consumer to be a good proxy for the Canadian consumer in many respects.

Uncle Sam Has a PROBLEM

So much of our attention is on Europe that we forget others have problems to. So it was helpful of The Washington Times to give us a succinct update of the US’s problem in Congress staring over edge of ‘fiscal cliff’. Not that they don’t have many problems but that they have only one fundamental PROBLEM.

This problem is the size of the government deficit and debt. All other problems may actually lead back to this problem. We could … (insert the statement of any other problem here) if only we had more money! Unlike Europe, the problem is not front-page – yet. But coming this winter to a theater near you …

The nature of the crisis is that the can consisting of spending cuts and tax increases reaches the end of the road Dec. 31. Congress has two options, allow the deferred spending cuts and tax increases to go ahead or roll them over. According to the Post:

That decision was put in stark terms Tuesday by the Congressional Budget Office, which in a new analysis said the economy will plunge into a recession early next year if Congress lets taxes rise and spending be cut, as called for under the law.

But if Congress changes the law to keep taxes low and spending high, it could add more than half a trillion dollars to the deficit in 2013, marking a fifth straight year of trillion-dollar deficits and risking the patience of the country’s creditors.

Nothing is likely to be achieved until after the presidential election. That in turns leaves little time for thoughtful action. And with the recent history of intransigence and deadlock, it will be an interesting winter in the US – warmer than usual we predict.

Who’s Dumping Treasuries?

Frequently when the Treasury Department or the Fed reports on foreign holdings of Treasuries, someone publishes a panic piece to the effect that country X is dumping their Treasuries. And from time to time we get articles on China’s doomsday weapon, the threat to dump their Treasuries. If we accept the idea of ‘dumping’ as a sudden massive insertion of some asset into a market, we will show in the post why there are large negative consequences and few positive consequence of trying to dump Treasuries. We will also show why dumping a large Treasury position may not even be possible.

Tracking the Ownership of US Debt

As of Dec. 2012, we are no longer updating this data monthly. The links provided give the reader access to the base data. In the year we have been tracking it, US debt has shown a steady increase without exceptional events. We have seen no change in the Chinese component that is cause for comment or alarm.

A Note on Credit Market Debt

Credit market debt is a measure of the debt in the economy. This post examines total credit market debt in relation to the money supply and advances some thoughts on inflation.

Has the Thief Been Caught?


Since we originally penned this post, the premise we put forward – that was a novel idea to us – seems to be increasingly validated by others. This is likely a case of focused attention. Once one becomes aware of something novel to one’s experience, one begins to see it everywhere. So here’s the post which we will probably update as supportive material becomes known.

Stealing (Growth) from the Future

Recall in “Understanding Debt“, we described how debt steals income from the future to be spent now. Another way of saying this is economic growth, GDP, is moved from the future into the present. Zero Hedge reported today: “ECRI’s Achuthan Sticks To His Guns: The US Recession Still Is Happening“. The comment that got our attention was:

He ends on a less than optimistic note pointing out that the pace of each economic recovery since the 1970s has been getting lower and lower and cycle volatility has increased helping to confirm his recession-is-happening call.

In other words economic recovery after each recession has been getting slower. So what has been happening since the 1972 recession?

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