What, Me Worry?

The Federal Reserve's Flow of Funds report for the fourth quarter of 2011 showed that household debt levels in the United States rose for the first time since the 3rd quarter of 2008. Total U.S. household debt increased to $13.22 trillion. This is a cause for ... what? Celebration? I don't think so. Here's the MarketWatch summary.

Household debt edged up 0.3% in the fourth quarter, the Fed reported in its flow-of-funds report, as consumer credit surged at a 7% annualized rate. Household debt had declined for 13 consecutive periods before the slender fourth-quarter advance.

The Fed report didn’t break down the gains in consumer debt, but previous reports from the central bank show that gains have come from car and student loans.

“The returns on these loans for many students have been disappointing as jobs remain hard to find and salaries grow meagerly,” said Paul Edelstein, director of financial economics at IHS Global Insight. He notes that unlike mortgage debt, student debt can’t be defaulted on.

And here's a quote from another MarketWatch story Americans borrow for college, not for housing.

Much of increase is in debt paid for college, an investment in the future that will yield high returns if the student works hard, picks a solid school and a good major and eventually lands a good job. Student loans from the federal government increased at an annual rate of $70.7 billion during the fourth quarter.

I'm old enough to remember when Americans thought an affordable college education was a right, not an often bad investment leading to huge amounts of debt you can't default on. So the consumer credit picture is not so rosy. Jake at EconomicPic Data broke it down for us.

Jake says "while all three categories (auto loans, personal loans, and student loans) combined for $20.7 billion seasonally adjusted in January, the bulk was in student loans. In fact, more than 100% of the total consumer credit increase was student loans ($27.9 billion increase)."

And then there's household wealth.

Americans also are wealthier, at least on a quarterly basis. Household net worth climbed by $1.2 trillion as the stock market improved, which more than offset the declines in the value of their homes.

Household real estate was worth $15.96 trillion, down roughly a third from its 2006 peak. U.S. households had a record-low 38.4% of the equity in their homes, down from nearly 50% in 2007.

Look! — "Americans" are a lot wealthier. This is a one year view of the Standard and Poors (S&P) 500 index. You can easily see the rise in the 4th quarter of 2011. You can also easily see that "Americans" are going to get even wealthier in the 1st quarter of 2012.

Returning to Earth, we note that the middle class is still screwed.

 

If anything will give consumers pause, it is probably how little they have rather than how much they owe. The Fed report showed the value of household financial assets, adjusted for inflation, was at 2005 levels. The value of real-estate holdings—where most middle-class wealth is tied up—was at 2001 levels.

That leaves many families 10 years closer to retirement, with nothing to show for it.

 

I could go on and on here, but why bother? As I pointed out in The Screwing Of The American People Continues, over 90% of the disposable income increases (in 2010) went to the very wealthiest Americans. So when MarketWatch says that  "Americans also are wealthier... household net worth climbed by $1.2 trillion as the stock market improved, which more than offset the declines in the value of their homes," we can easily see this nonsense for what it is. Gains in the stock market do not offset declines in house values. We're talking about two classes of people here, the ones who profit from the artificially inflated stock market and those whose main source of wealth is (or was) home equity. I suppose some pension funds are feeling a little richer, a state of affairs which is certainly not guaranteed to continue forever. And growing student debt burdens are not an investment in America's future.

So we have reached the "What, Me Worry?" phase of the economic "recovery" in 2012. I used to ask myself how long can this bullshit go on?

The correct answer apparently is that it can go on much longer than I initially thought it could.

Comments

[Brian M]

It seems to me that the status quo always goes on longer than we think it will. This is probably because human nature generally requires that change be forced upon it. Either external factors will conspire to force people to change or eventually (and, apparently, after a very long time) people's anger and fear of the known will overcome their hope and fear of the unknown.

This latter approach has been on display in various parts of the world. At some point, probably much further off than we think (or than would be prudent), it may eventually come to a theater near you.