Household Debt Mountain Grows, Nobody Cares

The Federal Reserve released its Quarterly Report on Household Debt and Credit report this week. Calculated Risk duly reported on the results, which included this text from the Fed.

Aggregate consumer debt fell approximately $60 billion to $11.66 trillion in the third quarter of 2011 according to the Federal Reserve Bank of New York’s latest Quarterly Report on Household Debt and Credit."

The decline in outstanding consumer debt reveals that households continue to try and deleverage in the wake of a challenging economic environment and large declines in home values," said Andrew Haughwout, vice president in the Research and Statistics Group at the New York Fed. "However, our findings also provide evidence that consumer credit demand continues to increase, a positive sign for consumer sentiment."

Even as "consumers" struggled to get out of debt while also facing a "challenging" economic environment—this is a euphemism for the the economy can't suck enough—and large declines in home values, credit demand continues to increase according to the Fed, although aggregate debt fell by about $60 billion out a total of $11.66 trillion. That's $60,000,000,000 out of a total if 11,660,000,000,000, which works out to about 0.5%.

I'll leave it to you to work out the various contradictions in the Fed's statement. Hint: is more debt the solution to a debt problem?

But more importantly, did "consumer" debt actually decline? Consider this stink bomb—

Aggregate consumer debt fell slightly in the third quarter. As of September 30, 2011, total consumer indebtedness was $11.66 trillion, a reduction of $60 billion (0.6%) below its (revised) June 30, 2011 level. The 2011Q2 and 2011Q3 totals reflect improvements in our measurement of student loan balances, which we had previously undercounted ... As a result, student loan and total debt balances for 2011Q2 and 2011Q3 are not directly comparable to earlier data ...

These balances are not directly comparable to earlier data? Oh, yes they are! The first graph below shows 2011Q2, which reflects "undercounted" student loan balances. The second graph shows the new data for 2011Q3, which incorporates those balances.

The 2011Q2 graph from Calculated Risk. Total debt, including "undercounted" student loans, was $11.4 trillion.

The new 2011Q3 graph from Calculated Risk. Total debt, including the revised student loan balance, is now $11.66 trillion.

Using the new accounting, total household debt fell $6 billion relative to the 2nd quarter, the data for which has also been updated in Calculated Risk's current (second) graph above. But if we compare 2011Q2 in the first chart with the 2011Q3 in the second, we see that total debt has increased by $260 billion when that new student loan data is included.

So the Fed has told us that total household debt decreased, which it did if you don't take all the data into account, when in fact total household debt has increased. Do they think we're stupid? I think they do. They certainly think we're dumber than they are, and let's face it, Fed economists are pretty thick. And the worst part of this is that nobody, not even Calculated Risk, noted the disparity. Everybody led with headlines like Bloomberg's Household Debt Falls by 0.6% in Third Quarter. That article noted that there were "improvements" to the Fed's student loan data.

In short, nobody gives a damn. Or didn't bother to look at the previous data.

Here's unorthodox economist Steve Keen talking about why we should forgive all this debt and start all over again. Keen's views, which I have agreed with in the past, are not bullshit, although let's face it, when all is said and done, Keen still an economist. That's always troubling. You'll note that the BBC interviewer Sarah Montague simply can't wrap her mind around the idea of forgiving debt (aka. a debt jubilee). Her cognitive density, the impermeability of Sarah's brain to unconventional thinking, becomes very annoying as the interview goes along.

You see, she has been taught that debt must always be paid back, even if it can't be paid back, or else there is a moral hazard, although the same criteria apparently do not apply to those who issued the bad debt in the first place. Thus you will find that things really bog down in the middle of this long interview, as Sarah keeps asking the same question over and over again, and Keen struggles to answer it each time.

 

Comments

[Mr. Roboto]

Back in the ancient Mediterranian world, once-in-human-lifetime mass debt-forgivenesses were a common thing. The ancient people of Israel called them "Jubilees". The reason they had them was to avoid a situation where a tiny elite owned everything and the rest of the population had absolutely nothing. I think we're about to find out the hard way why our ancient forbearers found Jubilees so very socially necessary.