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US Households Are Not “Deleveraging” – They Are Simply Defaulting In Bulk

Posted By admin On October 16, 2012 @ 2:13 am In Money Watch | Comments Disabled

Zero Hedge [1]
Oct 16, 2012

Lately there has been an amusing and very spurious, not to mention wrong, argument among both the “serious media” and the various tabloids, that US households have delevered to the tune of $1 trillion [2], primarily as a result of mortgage debt reductions (not to be confused with total consumer debt which month after month hits new record highs [3], primarily due to soaring student and GM auto loans). The implication here is that unlike in year past, US households are finally doing the responsible thing and are actively deleveraging of their own free will. This couldn’t be further from the truth, and to put baseless rumors of this nature to rest once and for all, below we have compiled a simple chart using the NY Fed’s own data, showing the total change in mortgage debt, and what portion of it is due to discharges (aka defaults) of 1st and 2nd lien debt. In a nutshell: based on NYFed calculations, there has been $800 billion in mortgage debt deleveraging since the end of 2007. This has been due to $1.2 trillion in discharges (the amount is greater than the total first lien mortgages, due to the increasing use of HELOCs and 2nd lien mortgages before the housing bubble popped).

In other words, instead of actual responsible behavior of paying down debt, the primary if not only reason there has been any “deleveraging” at all at the US household level, is because of excess debt which became insurmountablenot because it was being paid down, the result of which is that more and more Americans are simply handing their keys in to the bank and walking away, and also explains why the US banking system is now practicing Foreclosure Stuffing, as defined first here [4], as the banks know too well, if all the housing inventory which is currently in the default pipeline were unleashed, it would rip off any floor below the US housing “recovery” which is not a recovery at all, but merely a subsidized bounce, as millions of units are held on the banks’ books in hopes that what limited inventory there is gets bid up so high the second housing bubble can be inflated before the first one has even fully burst.

US Households Are Not Deleveraging   They Are Simply Defaulting In Bulk Mortgage%20Debt%20Discharged 0 [5]

Naturally, two concurrent housing bubbles can not happen, Bernanke’s fondest wishes to the contrary notwithstanding, especially since as shown above, US households do not delever unless they actually file for bankruptcy, and in the process destroy their credit rating for years, making them ineligible for future debt for at least five years. It is thus safe to say that all the other increasingly poorer US households (who are not getting paid more as we showed this morning [6]with the chart showing Y/Y change in US household earnings) are merely adding on more and more debt in hopes of going out in a bankrupt blaze of glory just like everyone else: from their neighbors, to all “developed world” governments.

And why not: after all this behavior is being endorsed by the Fed with both hands and feet.

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URL to article: http://www.prisonplanet.com/us-households-are-not-deleveraging-they-are-simply-defaulting-in-bulk.html

URLs in this post:

[1] Zero Hedge: http://www.zerohedge.com/news/2012-10-15/us-households-are-not-deleveraing-they-are-simply-defaulting-bulk

[2] $1 trillion: http://research.stlouisfed.org/fred2/series/HMLBSHNO

[3] hits new record highs: http://research.stlouisfed.org/fred2/series/HCCSDODNS

[4] defined first here: http://www.zerohedge.com/news/foreclosure-stuffing

[5] Image: http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/10/Mortgage%20Debt%20Discharged.jpg

[6] this morning : http://www.zerohedge.com/news/2012-10-15/chart-day-hourly-earnings-or-lack-thereof

[7] American Businesses and Consumers are NOT Deleveraging … They Are Going On One Last Binge: http://www.prisonplanet.com/american-businesses-and-consumers-are-not-deleveraging-they-are-going-on-one-last-binge.html

[8] Record Number Of US Households On Foodstamps: http://www.prisonplanet.com/record-number-of-us-households-on-foodstamps.html

[9] You Call This An Economic Recovery? 44 Million Americans On Food Stamps and 10 Other Reasons Why The Economy Is Simply Not Getting Better: http://www.prisonplanet.com/you-call-this-an-economic-recovery-44-million-americans-on-food-stamps-and-10-other-reasons-why-the-economy-is-simply-not-getting-better.html

[10] The Reason For China’s Epic 1 Trillion Yuan Deleveraging: The Biggest Housing Bubble Ever: http://www.prisonplanet.com/the-reason-for-chinas-epic-1-trillion-yuan-deleveraging-the-biggest-housing-bubble-ever.html

[11] The $3,200,000,000,000 Question: Why Housing Has Much More To Drop Before It Bottoms: http://www.prisonplanet.com/the-3200000000000-question-why-housing-has-much-more-to-drop-before-it-bottoms.html

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