I came across this in comments, from October 2014:
I think Edward Lambert has it right. The business cycle is close to it's end point and profits will decline because there is nowhere for demand to come from. See his recent posts at AB.
I always have trouble with Lambert's stuff. It is like I missed page one of the story, and can't make sense of what he says by starting on page two. As I recall, though, Jazz is right: Lambert was saying the business cycle is close to its end point.
That was a couple years back. Is Lambert still expecting recession? Yes, about a 70% chance.
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| Household Debt Service Payments |
Financial costs are down. That is where the increased demand will come from.
Just off the top of my head: If consumer spending is two thirds of GDP ... and if consumers have 3% more of DPI to spend ... and if human nature leads people to spend the money, then just off the top of my head GDP growth should be 2% higher. Because two thirds of 3% is 2%.
That's 2% on top of the two or two and a half percent growth economists envision.
I don't know what's going to happen. I don't like to make predictions because I'm always wrong. But the money has to go somewhere.
I think that if people have 3% of their disposable income lying around, accumulating, consumer confidence is going to improve. Between that and the spending, the economy will pick up. Then people will notice things are getting better. It will become a meme. Then it will become a trend.
By then, of course, we'll be spending that 3% of disposable income, and more. Household borrowing will accelerate, and yadda yadda yadda. Before you know it, we'll be in trouble again. Which is why I keep saying we need policy to stop encouraging the accumulation of debt, and we need policy to start encouraging the repayment of debt.
And we need that policy change in place now.
4 comments:
Art
Do you see anything that will change your mind on the vigor you are predicting?
From 01/01/2002 01/01/2008
Households and Nonprofit Organizations; Credit Market Instruments; Liability, Level
Increase
6.3 Trillion- 5.2 Trillion home mortgages, 1.1 trillion for the rest of it.
Average interest rate for 10 year 4.41%
From 04/01/2008 01/01/2016
Households and Nonprofit Organizations; Credit Market Instruments; Liability, Level
Increase
77.4 Trillion- -1.181 Trillion home mortgages, 1.259 trillion for the rest of it.
Average interest rate for 10 year 2.66%
Which means Household credit other than mortgages has double in the last 32 QTRS.
Your credit boom has already occurred unless you are predicting another boom in the housing market.
We can not pay for the next run up in credit with interest rates reductions.
Sorry
77.4 Trillion S/B Billion
Hey Oilfield. Thanks for looking into this.
I had to make the graph and download the numbers from FRED and look at the numbers a while.
If I understand your numbers:
$1.1 trillion is the change in household non-mortgage debt for 2002-2008.
$1.259 trillion is the change in household non-mortgage debt for 2008-2016.
You are right, non-mortgage debt has been growing faster in the recent period. But I wouldn't say that it doubled because household non-mortgage debt did not start at zero in 2002.
Also, looking at the numbers, household non-mortgage debt is 33.5% of household debt as of 2016-01-01. In 2001-01-01 it was 31.5% of household debt. That's not a tremendous increase, certainly not a doubling.
I see from the graph that the increase in household debt since 2008 is almost entirely non-mortgage debt (green). But it looks to me like mortgage debt (red) is now starting to go up. An increase that starts now, yeah, that's the start of vigor. I expect that line to keep curving upward.
I think people are just dying for the economy to improve. Nobody wants to be the first to borrow vigorously, so there is listlessness. Improvement comes slowly. But when there is enough improvement and people start to notice it, people will be more willing to borrow again. Nobody wants to be the last guy to get in on a good thing.
"We can not pay for the next run up in credit with interest rates reductions."
That's a good line. But please note that I am not saying there will be a painless ending to the vigor this time. Debt is still at a high level, and debt service will climb rapidly to a high level again I suppose. And raising interest rates will only hasten the onset of the next crisis.
Nevertheless, I predict vigor because that's what the graphs show me.
Following up.
OT: "Your credit boom has already occurred unless you are predicting another boom in the housing market."
I just found this from CNBC:
US household debt climbs to $12.25 trillion in first quarter
by Steve Liesman, 24 May 2016
The New York Federal Reserve reported Tuesday that total household debt climbed a slim 1.1 percent in the first quarter to $12.25 trillion. That's the seventh straight quarterly rise, and the biggest increase in mortgage debt since the Great Recession began.
There were also increases in auto and student loans, but credit card and home equity debts declined.
Total debt remains more than $400 billion below the peak of 2008, so per capita debt continues to decline. And rather than looking like a late-stage debt-cycle, credit quality continues to improve.
Newly delinquent loans rose by the least since 2005, up just $138 billion. By contrast, in the teeth of the recession, the stock of delinquent consumer debt was surging by more than $400 billion a quarter. New foreclosures and bankruptcies both fell.
...
So Tuesday's was not a bad picture of the consumer and debt. It's certainly not one that suggests we are in the later innings of a credit cycle.
// end quoted material
For the last 8 years we were getting back to a place where we can borrow again.
We're just about there now. And when the pace of borrowing picks up, the pace of the economy will pick up too.
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