Gretchen Morgenson has another great lede in Sunday's NY Times' Business Section, entitled: "
Debt's Deadly Grip." In it, we learn of the findings in the Federal Reserve Bank of New York's first report in their new quarterly series on household debt and credit. The
38-page report delivers some interesting metrics, including:
-- total consumer debt on June 30th, 2010 was $11.7 trillion, which was 6.5% lower than its peak in Q3 2008
-- consumers held 23.6% fewer open credit card accounts than they did in Q2 '08
(
DIARIST'S NOTE: As I've mentioned it in numerous diaries, such as
HERE and
HERE, highly-respected Wall Street analyst and consumer credit expert Meredith Whitney
pointed out, on numerous occasions in 2009, that Wall Street was eviscerating consumer credit, and it was anticipated that approximately 25% of all consumer credit lines would be stripped from the public by the beginning of 2010, with up to another 25% of remaining consumer credit lines being eliminated by late 2010 or at some point in 2011. So, this NYFRB report should not be misconstrued: these cuts in consumer credit were due to the TBTF banks' efforts, and they're not due to self-imposed consumer austerity over the past couple of years.)
-- mortgage "obligations", according to Morgenson's review of the report, have dropped 6.4% from their peak, almost two years ago
-- 11.4% of all outstanding consumer debt was delinquent compared to 11.2%, just one year ago
-- $1.3 trillion of consumer debt is delinquent, with $986 billion of that being 90-days late or greater
-- delinquent balances have dropped approximately 3%, year-over-year, compared to the period through the end of Q2 '09, but serious delinquencies are up 3.1% during the same period
--500,000+ people had a foreclosure added to the credit report during the second quarter of this year, alone, and that represents an increase of 8.7%, just over Q1 '10
-- consumers with new bankruptcies on their credit reports rose 34% during Q2 '10, to 621,000
Morgenson also gleaned the following from the report...
Debt's Deadly Grip
By GRETCHEN MORGENSON
New York Times
August 22, 2010
...Per capita debt balances are staggering, as well -- and for many consumers, the assets underpinning these obligations have collapsed. Reflecting the heavy burden that mortgages represent for most consumers, these debts are highest in states where the real estate mania went craziest. In California, for example, the average per capita debt balance among consumers with a credit report is $78,000, the Fed said; in Nevada, it is $73,000. The nationwide average is $49,000...
(Bold type is diarist's emphasis.)
The Pulitzer Prize-winning business journalist continues on to point out that this further exacerbates the economic problems on Main Street, where "...consumers' income statements aren't exactly flush right now, thanks to high unemployment and rock-bottom interest rates. "
Of course, this is what happens after a spectacular asset bubble bursts. Nevertheless, for consumers who are cutting debt and trying to save, it is dispiriting indeed that they generate so little on their money. Those living on fixed incomes are also in a bind.
It is not lost on these consumers that their minuscule returns are a direct result of the Federal Reserve's attempt to shore up troubled banks' financial standing. Sharply cutting interest rates vastly increases banks' profits by widening the spread between what they pay to depositors and what they receive from borrowers. As such, the Fed's zero-interest-rate policy is yet another government bailout for the very industry that drove the economy to the brink.
(Bold type is diarist's emphasis.)
I find this article fascinating on many levels, and strongly urge folks to read it!
Morgenson continues on to provide third-party analysis which explains to us how the Federal Reserve's "ZIRP" ([near] "zero-interest-rate-policy") is, arguably, the biggest hidden Wall Street bailout of all, because it's an "...invisible tax that costs savers and investors roughly $350 billion a year. "
...This tax is stifling consumption...and is pushing investors to reach for yields in riskier securities that they wouldn't otherwise go near.
In short, the Fed's interest rate policy may be causing more economic problems than it's solving...
The article concludes by reiterating the obvious: if interest rates were higher, our interest on our budget deficits would be higher. But, as Morgenson and her independent sources also point out, slightly raising interest rates (a point or two) would, a.) lessen the appeal of riskier investments, and, b.) increase consumption (by savers and those on fixed incomes), and aid struggling pension funds, as well. And, it's also pointed-out in the article that even a modest increase in interest rates "...could push some teetering banks off the cliff."
Meanwhile, speaking of riskier investments, the top/FP lede in Sunday's NY Times is: "In Striking Shift, Small Investors Flee Stock Market."
And, perhaps even more to the point--certainly for Democrats--is the following piece by Louise Story, also in today's NY Times (Week In Review Section): "Income Inequality and Financial Crises."
Income Inequality and Financial Crises
By LOUISE STORY
New York Times
August 22, 2010
David A. Moss, an economic and policy historian at the Harvard Business School, has spent years studying income inequality. While he has long believed that the growing disparity between the rich and poor was harmful to the people on the bottom, he says he hadn't seen the risks to the world of finance, where many of the richest earn their great fortunes.
Moss tells us that his studies of the Great Recession may point to a reality which confirms that increased economic inequality between a society's classes may be a primary cause of financial crisis. (Frankly, I think Moss' conclusions over-complicate a much simpler reality: The unbridled greed of a society's status quo will trump the financial well-being of the rest of the society in a New York minute. Or, certainly over 30 years! In fact, I think they teach this over at Harvard "B" in the first year...it's called "Pillaging 101.")
...The possible connection between economic inequality and financial crises came to Mr. Moss about a year ago, when he was at his research center in Cambridge, Mass. A colleague suggested that he overlay two different graphs -- one plotting financial regulation and bank failures, and the other charting trends in income inequality.
Mr. Moss says he was surprised by what he saw. The timelines danced in sync with each other. Income disparities between rich and poor widened as government regulations eased and bank failures rose.
"I could hardly believe how tight the fit was -- it was a stunning correlation," he said. "And it began to raise the question of whether there are causal links between financial deregulation, economic inequality and instability in the financial sector. Are all of these things connected?"
A YEAR AGO...
Then again, we've been talking about this for a few years now, haven't we? In fact, it's a bit of an anniversary weekend, because a year ago, virtually to the day, you read this for the first time: "The Two-Track Economy," on August 20th, 2009, from Simon Johnson, over at his Baseline Scenario blog.
# # #
Here are a couple of excerpts from my post from August 20th, 2009: "A Tale of Two Economies."
...Johnson talks of a recovery that will have absolutely miserable overtones for most of our society (i.e.: Main Street) for many, many years...perhaps even longer than that. But, the Wall Street folks (i.e.: the upper class) will continue to hum along.
Two days earlier, along the same lines as today's post, Johnson wrote this on his blog: "United States Inequality In The Recovery Period." In it, Johnson went into even greater detail on this line of thought:
United States Inequality In The Recovery Period
Simon Johnson
Baseline Scenario
August 18, 2009
...There's a general assumption that, to whatever extent historically record-high inequality is present, it will almost certainly be gone post-recession. But what if it isn't? What if this recession, and the recovery, will cement inequality in the United States even further?
--SNIP--
And, more from Johnson...
There are a lot of moving parts going on with the interaction between the top percents and the middle class, inequality and collapse, but it isn't hard to see a story where the stock market picks up, housing is in decline for a decade, and we have a jobless recovery. I'm not sure how that would effect our quantitative measures of inequality, like the gini coefficient, but we could end up with much more inequality, and inequality that stings a lot harder than it did during the boom times.
Johnson then references a piece I must've read three times if I've read it once (and that was well before I read Johnson's piece tonight, too), from this past Saturday, by the folks over at--of all places--Zero Hedge. (NOTE: Johnson and Zero Hedge do not have a whole hell of a lot in common, politically.)
"A Detailed Look At The Stratified U.S. Consumer"
Tyler Durden
Zero Hedge
August 15, 2009
...It is probable that the dramatic increase in savings as disclosed previously, is an indication that at long last the richest 10% of America may be finally feeling the sting of a collapsing economy. Yet estimates demonstrate that even though on an absolute basis the wealthy are losing overall consumption power, the relative impact has hit the lower and middle classes the strongest yet again...
The main reason for this disproportionate loss of wealth has to do with the asset portfolio of the various consumer strata. A sobering observation is that while 90% of the population holds 50% or more of its assets in residential real estate, the Upper Class only has 25% of its assets in housing, holding the bulk of its assets in financial instruments and other business equity. This leads to two conclusions: while average house prices are still dropping countrywide, with some regions like the northeast, and the NY metro area in particular, still looking at roughly 40% in home net worth losses, 90% of the population will be feeling the impact of an economy still gripped in a recession for a long time due to the bulk of its assets deflating. The other observation is that only 10% of the population has truly benefited from the 50% market rise from the market's lows: those better known as the Upper class.
And to add insult to injury, the segment of housing that has been impacted most adversely in the current downturn, is lower and middle-priced housing: that traditionally occupied by the lower and middle classes. The double whammy joke of holding a greater proportion of net wealth in disproportionately more deflating assets is likely not lost on the lower and middle classes.
Yes, the wealthy aren't exactly going to have to worry about our "new normal," are they? (See: "America's bumpy journey to a new normal.")
# # #
It's true, "...the wealthy aren't exactly going to have to worry about our 'new normal,' are they? "
But, with roughly 70+/- days remaining until the 2010 mid-terms, and with unemployment still where it was (approximately) a year ago, and expected to increase over the balance of 2010 -- along with record amounts of long-term unemployed falling off the unemployment rolls and "being disappeared" from our government's statistics on a monthly basis -- the voters are freaking out about it...and Democrats have been watching this slow-motion trainwreck, too.
"Hoocoodanode?" As the New York Times reminds us in multiple articles, today, a year after Simon Johnson published his articles on our "Two-Track Recovery"...over the past 12 months, just about everyone knew...that's "who."