Friday, November 7, 2014

The Long-Term View: Borrowing Our Way to Prosperity

The following chart shows the change in total outstanding consumer credit owned and securitized over the previous year divided by the total wage and salary disbursements over the previous year.

Click to enlarge.

I have added a linear trend in red and a 20-year moving average in blue.

Both trends pretty much tell the same story. On average, over the long-term, we add $2 to our consumer debt for each $100 we make in wage and salary disbursements. As seen in the chart, we're currently attempting to add $3. Just look at us go.

So what does this mean? Thanks to seemingly never-ending credit expansion, we're a superpower with super spending power!

November 7, 2014
US consumer borrowing up $15.9 billion to record

Rising levels of consumer borrowing coupled with strong employment growth are viewed as good signs that consumers are confident about taking on more debt to boost purchases.

Coupled? What a great word. The more we borrow the more jobs appear! The more jobs appear the more we borrow! What a fantastic feedback loop of prosperity! Let's hope it never needs to work in reverse again. And why should it?

The large increase in student debt has raised concerns that young Americans are being saddled with student loans that will keep them from buying homes or spending as previous generations have after college.

Well, there is that I suppose.

The New York Fed reported that demand for auto loans reached the highest level in eight years this spring with more people with checkered credit histories obtaining the loans. That has raised worries about the potential for defaults down the road.

And that. But hey, let's not dwell on the negative. Defaults down the road could be years, months, or even days away. Who can really say for sure?

Source Data:
St. Louis Fed: Total Consumer Credit Owned and Securitized, Outstanding
St. Louis Fed: Compensation of Employees, Received: Wage and Salary Disbursements


Anonymous said...

Wait until these new cars need new tires. The borrowers
won't be able to afford both the note and new tires.

Anonymous said...

Why is all the news on this site so grim. I go to Calculated Risk and everything is rosy. I come here and get depressed again. I haven't been to Keen's site for awhile but I recall that he blamed the great recession mostly on the run-up in consumer debt. Any chance of you including the recessions in your chart. Thanks! (I think) Fred

Stagflationary Mark said...


Perhaps that's one reason why vehicle miles traveled per capita hasn't recovered. Tires clearly last longer if driven on less.

Stagflationary Mark said...


Don't get too depressed! My site is not balanced and fair when read in isolation. I'm a permabear. I seek out data that's disturbing. My main goal here is to present the bearish case in order to balance out all the optimism you can read elsewhere. And generally speaking, there is so much optimism in the financial news. My work is never done!

Seriously. Read the bad things on bearish sites. Read the good things on optimistic sites. The truth may be somewhere in between.

Put another way, I don't know with certainty that I am right to be a permabear. If I was certain, I'd be taking bigger risks. Owning long-term TIPS to maturity is a very wimpy strategy for a permabear. It betrays my lack of conviction. No rabid permabear would own long term treasury debt like I do.

Per your request, here is a chart with recession bars that mimics mine (not exactly the same but very close).

As a side note, you may be interested in why I generally don't add recession bars. In the past, I used to do it more often.

1. I'm lazy. Since nearly every chart I do is unique and therefore must be done from scatch, adding recession bars costs me time. That's time I would generally rather devote to seeking out and creating more charts.

2. I see many of the recession bars in my mind now (so adding them is less useful to me). It comes from staring at the charts at the St. Louis Fed. I'd say for every chart I post here, I've seen 20. Just a guess.

3. I often annotate the charts I do. Recession bars add visual complexity to the chart. More so than most, I'm not a fan of clutter. For example, the perfect coffee table for me is one with nothing on it (except things that are temporary like beverages).

Stagflationary Mark said...

I do believe with 100% conviction that there will ultimately be a financial day of reckoning. That generally doesn't help me invest though, and here's why.

I also believe with 100% conviction that my house will not stand the test of time. Something will eventually destroy it. That does not mean that I should necessarily sell it to someone else and have them rent it back to me though.

Wouldn't it be useful to know the timing? Unfortunately, the timing is the most difficult part. I'm hoping that both days of reckoning are long after I'm dead. There's no way to know for sure.

Anonymous said...

It's wonderful to have your perspective - thanks for putting in all the work!

Stagflationary Mark said...


Perhaps I should have gone with Stagflationary Marv. ;)