NY Fed Mortgage Debt Data Says No US Recovery

The obvious question: is inventory up because no one’s buying it?

The emperor should be passing through any day now.

Re: Mortgage Debt Reduction and Deficiency Judgements

How much of that reduction in Household Mortgage debt is really an illusion? If a house is sold for less than the debt owed (through short-sale or foreclosure auction), then banks have 5 years to decide whether or not to sue homeowners for the loss (the deficiency). If the judge agrees with the bank, then homeowners, who think they’ve shucked off the ball-and-chain, will soon find the shackles re-applied through a deficiency judgement.

Type the words “deficiency judgement” into google. You’ll see that this sneaky dog is beginning to snarl, bark-at, and bite the moms and pops who thought they’d moved-on to better days.

Most homeowners don’t know that a deficiency judgment has been activated until the debt collectors begin to knock at the door and ring the phone. The provision to seek debt collection for the mortgage loss is often buried deep in the legal fine print of short sale and foreclosure documents, and banks or loan sharks who buy the distressed debt have 20 years to collect.

https://online.wsj.com/article/SB10001424053111904060604576572532029526792.html

https://www.palmbeachpost.com/news/business/real-estate/local-couple-tormented-by-foreclosure-that-wont-go/nStXn/

Ilargi –

I agree with all the stuff you say. I’ll add:

As long as the US government can successfully borrow 30% of federal expenditures every year, I think that things will remain largely happy. Our housing prices bounce, we see a modest recovery, and all will seem well.

Its only when we can no longer live on prosperity borrowed from the future that the whole ponzi system will unwind – the way it is doing right now in Spain and Greece. So that market crash that some people expect won’t happen until that inability to borrow comes home to the US government. Inability to borrow happens first in the periphery and then moves to the core. And the US defines “the core”, so it will happen here last.

Regarding recoveries though – an interesting chart crossed my screen the other day. An indicator which seemed to do a good job at predicting recessions. Here’s the chart:

https://research.stlouisfed.org/fredgraph.png?g=dht

I make no claims on its ability to prognosticate, but it did intrigue me. This indicator doesn’t trigger too often, and in the past 40 years it has never gone above 20% without a recession happening very soon thereafter. My trader instinct says to wait for it to hit 30-40% before taking action, because these are unusual times. This indicator is updated monthly. However, I have not done a deep dive into understanding what goes into calculating this index. Here’s the paper behind the calculations, in case YOU want to dive into this particular rabbit hole:

https://research.stlouisfed.org/publications/review/03/03/ChauvetPiger.pdf

Having an indicator that can detect the onset of a recession in real time is actually quite valuable – at least for those of us who are interested in such things anyway. Usually, we only find out we entered a recession six months after the fact.

Will a recession cause a market crash? An interesting question. It would surprise me, given all the money being borrowed and spent. But it could happen. Currently, I’m on the fence.

davefairtex post=6215 wrote: Usually, we only find out we entered a recession six months after the fact.

Dave,

That might just be the case.

https://finance.yahoo.com/blogs/daily-ticker/ignore-gdp-fiscal-cliff-u-already-recession-ecri-174612999.html

Steve from Virginia has it right: industrial society cannot pay for itself, at least until the thorium reactors or nuclear fusion give us the net energy to grow out of this massive debt :). Seems to be that Bill McBride is just another unquestioning believer in perpetual growth. Haven’t read much from him on energy issues.

Dave Cohen is also discussing the debt issue on his blog:

https://www.declineoftheempire.com/2012/11/us-household-debt-is-totally-out-of-control.html

An interesting graph, for sure. I have to say, however, that I am a little confused… The article takes the stance that households MUST deleverage by $2 to $3 trillion (back to the 2003 level), end of story, no alternative. What’s the economic argument for 2003 debt levels? Why not 2005, or 2001, or any other year for that matter? The article also says that the massive deleveraging is inevitable, but is it not possible that the economy could fluctuate for decades between moderate further deleveraging and minuscule growth? I don’t believe the market pumpers who say we’re “getting back to normal” (what the heck is “normal” after all), but I also have trouble with the idea that total collapse is the only alternative.

To say the emperor has no clothes would be an understatement. The debt only describes consumer habits of spending unearned dollars.

At a certain point countries that matter will no longer accept the US dollar as the currency of trade. A few years back China put forth in its long term plan that it would in 10 years stop accepting US dollars in trade. They made the announcement to prepare nations.

China has stated about a month ago it will no longer strive to increase world trade but encourage economic trade within its borders. I don’t believe most get the implications but it is simply this: those mortgages and debts we have are held by the Chinese only in the short term and will not be held much longer.

Good luck and get out of debt. Credit is the new boring and Cash is the new sexy.

Hi folks,

… I’m pretty sure about the timing that auto sales were going to collapse a lot further, and he had some arguments on it and I went and looked and thought “auto sales also can’t go too much further, people have to replace their cars.” And so I wrote this article that says look, auto sales are near the bottom – we were at a 9 million annual rate then- I said there’s just no way – we have to be selling 12, 13,14 million because people need new cars every 5-7,8 years.

I do like Bill McBride, and his work, and I do like Joe Weisenthal, but I’m sorry, I simply don’t think you can say things like that. It harks back all the way to the dry semantic discussion of what it is that people may a) need, b) demand and c) want. You can’t say that people will buy cars because they need a new one every 5-8 years. Because they will still need to have the money to buy them. Demand is what people can afford, not what they want.

The pic refers to Cuba’s famed old pre-revolution US imported cars most of which are over fifty years old, and are now since 2009 allowed to be ‘sold’ after draconian communist property laws were relaxed. However:

The ‘irony’ is palpable…

L,
Sid.

jal post=6222 wrote: Having thorium reactor as another heat producer does not seem me that there would be any decrease in the amount of heat that is being pumped into our environment.

Global warming problems … here we come.

jal, it’s not the heat that’s the problem, it’s the trapping of it. As for thorium, it’s already generating heat, just as all the other radioactive particles on/in the planet. It’s not as simple as just capturing the heat, but thorium reactors wouldn’t cause any kind of spike in heat relative to what we’re already generating, assuming that population and demand don’t climb further.

Re: Household deleveraging — Some may see the irony in this article:

“…securitized energy-efficiency debt…”

“There is, in short, a gap between what technologists are selling and what consumers are buying. That gap has big environmental costs, given the vast amounts of energy the United States wastes each year through leaky buildings and inefficient machines. Now, a growing cadre of savvy investors is betting there’s money to be made bridging that divide. They’re designing complex financial instruments to bankroll energy-efficiency improvements in houses and other buildings across the country. And they’re setting themselves up as the middlemen…

https://www.slate.com/articles/health_and_science/the_efficient_planet/2012/11/invest_in_energy_efficiency_how_bundling_lots_of_small_improvement_projects.html

Taking back their leverage for a noble cause. Jeez.

Can someone extrapolate or expand to the Canadian situation? Are we looking at a similar de-leveraging phenom in Maple Leaf Land giving the high consumer debt levels? Where are home/and prices headed and how geographically sensitive are the pressures?

Given that there is another debt account, the public debt, and that it has grown by about $10 trillion since 2003 with most of that growth since 2008, a reduction in private consumer debt of a couple of trillion isn’t deleveraging at all. Reducing my Visa card balance by running up my balance ( OK I get a better interest rate) on my new Master Card isn’t getting me out of debt especially when that public spending accounts ( through transfer payments) for such a large proportion of consumer income. Thus if you actually try and reduce the growth in public debt you actually make the private debt burden grow.

“That is, an economic recovery in the US is not possible when households still have to deleverage to the tune of $2-3 trillion.”

I don’t see too much mention of interest rates. With mortgage interest rates still dropping, I think you are a bit early with your call. I agree that the economy isn’t growing, but the main reason for that is that CPI and PPI is much higher than stated by the govt. and therefore REAL growth is much lower than stated.

Freddie Mac says a 30 year fixed is now 3.32%, and a 15-yr is at 2.64%. We are approaching the end here, but I think there is one more leg down.

The key web site to look at is https://droughtmonitor.unl.edu/. All the major grain charts are bullish, and corn and wheat super bullish. If we don’t get way above average rain/snow over much of the eastern half of the nation within five months, you are going to see food price inflation on a terrifying scale.

Once this food price inflation kicks in, next Summer, the fed will be powerless to stop it. Bernanke talks of removing stimulus at a moment’s notice, but as you pointed out, the economy isn’t growing, so he can’t raise rates. This coming hyperinflation will be one for the ages.

Federal Reserve Notes, checking account balances, saving account balances, CD’s, etc. are simultaneously the debts of banks and are the “money” supply we use. When an economy uses bank debt for money, in order for money supply to be increased (bank debt to be increased) banks out of thin air create new checking account balances and loan them to people, businesses, and governments, thus indenturing the public. When these loans are repaid to banks the money supply decreases. This is why debt owed to banks, directly or indirectly, is a drag on economic activity.

Increases in money supply have a tendency to drive up prices as the new money enter the market and bids up prices. Decreases in money supply have the opposite effect. But at higher price levels, the buying power of existing money is reduced so higher prices drag down economic activity.

One of the major factors of the ability of a society to carry debt is income, and when the cost (in money terms and in energy terms) of acquiring energy increases a society’s income diminishes. Its debt carrying ability comes under pressure. Each sources of energy has a cost curve that exhibits compound growth at some rate, ultimately making them terminal as cost in energy terms approaches 100% of the energy acquired.

When government attempts to control markets with subsidies, their own spending, taxing and borrowing, and regulations, the tendencies of an economy to come into balance are thwarted.

Of course there are other factors, but income, debt, price levels, and government interference are quite significant. The old adage that a depression is in size proportional to the debt issued during the preceding boom, and in length is proportional to the effort of government to manage it, seems to be appropriate. But that equation leaves out the problem of energy which is a game changer since energy constraints become income constraints of a society of already indentured servants.

While there is unlikely any avenue to escape our long term fate of economic contraction, certainly (1)abandoning the predatory, unstable, unsustainable monetary system based on credit and fractional reserve banking, and (2)eliminating most of the federal government, would give us a better shot at dealing with what is to come. Of course neither of these will happen peacefully, if at all.

Well, I see two problems with using the graph. First, it is in dollars so it is not inflation adjusted and second it is not population adjusted. Therefore the debt per capita is lower than shown.

You did not factor in interest rates in this analysis. Interest rates today are half what they were in 2003. Thus even though households are carrying a larger mortgage debt, the mortgage payment might be lower because the interest rate is lower. By 2010, mortgage interest payments had already fallen below 2003 levels, and the interest rate has dropped further since then.
https://www.bls.gov/opub/btn/volume-1/a-comparison-of-25-years-of-consumer-expenditures-by-homeowners-and-renters.htm