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MP: The chart shows the ongoing de-leveraging of U.S. households:

http://1.bp.blogspot.com/-Uf9Lmn9a1CY/TukOvrHGSCI/AAAAAAAAQcc/m-nBivoPfx4/s1600/debt.jpg

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PeakTrader said...

A lot of wealth disappeared from the housing and stock markets:

U.S. economy braces for old challenges, new headwind
2011-12-12

Economists hold that trillions of dollars of U.S. household wealth has evaporated during the financial crisis, and the enormous loss of securities and housing values are weighing on the private sector demand and consumption.

"The natural reaction of U.S. households is to try to rebuild the wealth, and to do that by spending less and saving more," Nobel Prize laureate economist Robert Solow told Xinhua.

The deleveraging process will work itself out at a very slow pace, contended Solow, adding that "if that has to happen naturally, it could take three, four or five years."

U.S. household net worth, the gap between the value of assets and liabilities, further shrank by 2.4 trillion U.S. dollars from the second quarter this year to 57.4 trillion dollars by the end of September, latest figures from the U.S. Federal Reserve revealed.

It is the second straight quarterly decline, and the sharpest drop since the October-December quarter of 2008.

The U.S. household net worth has decreased by about 12 percent from its peak before the financial crisis.

Solow's view was echoed by Karen Dynan, a senior fellow at the Washington-based Brookings Institution, who argues that many U.S. households still remain "under a great deal of strain."

The fact that there is more deleveraging to come suggests that the overhanging debt remains a headwind to the U.S. economic recovery, noted Dynan.

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And median income is lower:

Income, Poverty and Health Insurance Coverage in the United States: 2010
SEPT. 13, 2011

The U.S. Census Bureau announced today that in 2010, median household income declined, the poverty rate increased and the percentage without health insurance coverage was not statistically different from the previous year.

Real median household income in the United States in 2010 was $49,445, a 2.3 percent decline from the 2009 median.

•Since 2007, the year before the most recent recession, real median household income has declined 6.4 percent.

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Che is dead said...

At he end of 2010 the federal debt was equal to $44,886.57 for every man, woman and child in the United States. That was up $10,429.64 from 2009. The government has managed to spend more again this year than last which means an additional $10,000.00 plus added to the tab - $40,000.00 plus for a family of four.

"The federal government has accumulated more new debt - $3.22 trillion - during the tenure of the 111th Congress than it did during the first 100 Congresses combined ...", a new record, breaking the old record held by the 110th Congress.

"The $3.22 trillion in new federal debt run up during the 111th Congress exceeds by 64 percent the $1.957 trillion in new debt run up during the 110th ... Democrats controlled both the House and Senate in the 110th and 111th Congresses." -- CNS News

So, it would seem that deleveraging done at the household level is a drop in the bucket compared with the tsunami of debt that the Congress has loosed during the same period.

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http://www.blogger.com/comment.g?blogID=28997633&postID=8785608678943087713

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PeakTrader said...

Many people don't realize the U.S. economy is in a weak position.

Further U.S. monetary stimulus is constrained by inflation.

Further U.S. fiscal stimulus is constrained by budget deficits.

Obama, rather than moving to the center, like Clinton after the 1994 defeat, not only continues to defend his failed economic policies, he wants more of the same, while stepping-up attacks on the most productive Americans, for "not paying their fair share."

An economic shock, e.g. an E.U. recession, particularly if it turns into a vicious cycle, making the recession much worse, will cause a double-dip U.S. recession, and there won't be much the U.S. can do about it.

Except, hope the GOP wins big in 2012 and does what needs to be done, e.g. deregulating, cutting spending, and cutting taxes, on a large enough scale to jolt the economy into a virtuous cycle of consumption-employment.

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PeakTrader said...

The inverted yield curve before the 2007 recession supports the fact that U.S. monetary policy was restrictive (the Fed believed the global savings glut contributed to the inverted yield curve and kept the money supply too tight).

Currently, if short-term rates are too low, e.g. zero Fed Funds rate or quantitative easing (because of accelerating inflation), the 10-year yield of only 2% (the lowest since the 1950s) may forecast recession.

Riding the yield curve
December 27, 2005

"The biggest risk in 2006 is that the Fed will be seduced by worries about inflation into raising rates too high," said Hugh Johnson, chairman of Johnson Illington Advisors. "A lot depends on what the 10-year does and while I would hope that they would take notice that it's going down in yield, the question is whether they will take it seriously or dismiss it."