Saturday, December 6, 2014

Day 18

Andrew Kliman identifies "consumer credit" as "all household borrowing except for home mortgages". I like that kind of clarity. Specifics. Now, at FRED, if I search for consumer credit I get seven pages of results, including these four from the first page:

Graph #1: Four Measures of Consumer Credit, all tracing the Same Path
When I add CMDEBT to the picture, the measures of Consumer Credit look small:

Graph #2: CMDEBT (reaches 14,000 billion) and the Four Measures of Consumer Credit
Now I have to wonder about the difference. It can't be all home mortgage debt, can it?

Graph #3: Home Mortgage Debt

Could be. Home Mortgage Debt peaks near 11,000 billion. Subtract 11,000 from 14,000, you get 3000. Consumer credit (Graph #1) approaches that level.

That means we owe three to four times on our homes what we owe on our credit cards and our student loans and our installment loans and our car loans and personal loans, all of that together. Does that seem reasonable?

Dunno. Debt is excessive, so nothing is reasonable.

I'll go with the numbers.

Clopper Almon says the NIPA series "Net interest and miscellaneous payments on assets" is a measure of all interest that is in GDP.

He says "interest paid by business less interest received by business" is "all the interest that is included in GDP".

He says interest on consumer credit is not part of GDP, but "interest on home mortgages is included because home owners have been converted into a fictional business in the NIPA".

Don't fret about the "why and wherefore" of that. Just look at it.

We know the amount of interest that's included in GDP. We know part of that is mortgage interest from those "fictional businesses", but we don't know how much. But FRED does give us "Monetary interest paid: Households: Owner-occupied housing". That series is my best guess for "mortgage interest paid", which is what we need.

I looked at that series, compared to mortgage debt, to calculate a mortgage interest rate. That's the blue line on the graph below:

Graph #4: Effective Mortgage Interest Rate (estimated) (blue), and the
30-year Conventional Mortgage Rate, Copyright 2014, Freddie Mac (red)
I put the 30-year mortgage rate on the graph, for comparison. My number looks good.

Okay, so we can use FRED's "Monetary interest paid: Households: Owner-occupied housing" (W498RC1A027NBEA) as a measure of interest paid by the "fictional businesses" that is counted in GDP. And we have "Net interest" as a measure of all the interest that is counted in GDP. Compare those two:

Graph #5: Mortgage Interest (blue, in GDP) and Net Interest in GDP (red)
Assuming I have things right, it looks like mortgage interest is most of the interest that's included in GDP. Of course, the red line shows only net interest, not all of the interest paid by businesses. So it's probably an unfair comparison.

So be it. I still want to see mortgage interest as a percent of the net interest number:

Graph #6: Home Mortgage Interest as a Percent of the Interest Counted in GDP
For what it's worth.

1 comment:

jim said...

A huge amount of the sub-prime mortgages (about 70%) were home equity extractions.
One can imagine most of the extracted money was used for consumption.

If you believe this chart, the change from positive to negative equity extraction accounts for about 15% decrease of household disposable income available for consumption after the sub-prime mortgages crashed and burned and disappeared.