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Fed’s Fred

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Reading through the Fed’s data what I got was, household debt is basically at an all time high, mortgage debt is a little under 08 high, but auto plus student loan plus credit card pushes it to all time highs. House prices are at all time highs. Total discretionary income is all time high, but median income is not. Population is up 20 million since 08. Debt to income wasn’t near highs.

So I’m trying to put together why income is ATH, but median is not and debt to income doesn’t look that bad. Is this where the income inequality is since the median is not keeping up with the total, or is it just total population is up so total always rises regardless of the median?
In 08, debt levels this high and the world tried to collapse, but now we have higher total debt level and there doesn’t seem to be an issue. Is this just a function of population growth and inflation, in the sense of we’d need to see another 10% total debt increase to start really seeing issues?

Basically the Fed numbers don’t point to 08 level insanity yet, but if you do an average budget with an average income, the math doesn’t seem to work. May is missing something about cooperate debt or foreign money that makes this work?

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Posted by (Questions: 26, Responses: 32)
Posted on 07/24/2017 2:00 PM
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It’s all consistent with low growth, eh? The economy is doing okay in the aggregate, but the median income is still stagnating. Iequality is increasing as net worth booms and more and more income flows to the corporate sector. And the median household can’t borrow as much as they probably want to keep up with the Joneses.

But be careful assuming that all debt is the same. What made 2008 so dangerous was that it was specifically housing debt. Housing is an essential item to household balance sheet health beacuse it’s such a huge portion. The fact that we haven’t seen a big boom there is a good thing as it means that the systemic risk of this asset price boom is much lower than in 2008.

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Cullen Roche Posted by (Questions: 10, Responses: 1800)
Answered on 07/26/2017 8:10 PM
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I get that housing debt is better then 08, but credit card, auto, and college are much higher. Auto’s can get repossessed, credit cards get on payment plans, and really I have no idea what will happen to student loans. I guess all those are better then losing a house, but still bad. I can see that the top US household are much better off since 08 but really is the average US household’s monthly budget any better then it was in 08?

Trying to exclude the political part of this, the economic expansion of the last 10 years comes through in totals, like GDP, total income, but in per capita basically stagnant at best. With lower birth rates and a large aging population will we need a large amount of immigration to sustain any growth? Fromm what I understand Japan’s problems come from low birth rate, aging population, and very low immigration.

Also, since housing price/rents are at all time highs and I thought house cost was the largest part of the inflation number then why is inflation been so low? I see that crop and crude prices are low, so those lower input costs offsetting higher rents?

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Posted by (Questions: 26, Responses: 32)
Answered on 07/27/2017 9:44 AM
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Owners equivalent rent is only running about 3.2% right now. That’s not very high.

Is the average US household better off? I guess that depends on what you mean. I’ve shown that even with stagnant wages the avg household is definitely better off because we spend less on necessities than ever.

https://www.pragcap.com/the-myth-of-declining-american-living-standards/

But if you’re measuring things based on median income and net worth then no, most households probably aren’t better off because inequality has increased. But there’s a big difference between now and 2008. That is the fact that people’s incomes and balance sheets aren’t directly tied to what became a volatile asset class (houses). Of course, it’s morphed a little and stocks are likely to cause the next recession (in my opinion), but stocks aren’t nearly as important to the avg household as house prices.

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Cullen Roche Posted by (Questions: 10, Responses: 1800)
Answered on 07/27/2017 3:20 PM
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One thing which I don’t see good statistics on is the demographics of wealth and debt. There is a convolution over demographic changes and wealth/debt changes which is clearly important but most of what I have read appears to be speculative and poorly modeled. As an example use the Baby Boom generation (of which I’m a part). It seems reasonable that the BBG is a contributor to current high stock valuations (and perhaps housing as well) because we, in aggregate, hold most of our wealth for retirement in stocks and housing. But for the most part we had no student debt.

However, over the past 30 years we have made fundamental changes to financing higher education, which broadly shifts the financial balance sheets of younger people in ways very different from the BBG lifetime balance sheet picture. On the other side, it appears a lot of the younger generations don’t think Social Security will be there for them (there is a lot of financial ignorance in the USA). While these are just simple examples, if broadly the younger generations choose to spend less on housing (for whatever reason, student debt, higher retirement savings, …) it changes the overall financial macro economic picture. How it will play out I don’t know.

When I bought my current house I had reservations about buying a 4000 sq/ft house (for me and two, at the time, elementary school age children) because I worried that the future demand for family sized houses (with the elementary school 200 yd away) would be meager. To date my previous analysis is completely wrong, although long term perhaps my earlier view will have value. (houses in my neighborhood are up 60% from when I bought in 2011 and sell in days to a couple weeks).

But how younger generations view the core financial assets of ordinary households will have a big impact on the future of the US economy;

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Posted by (Questions: 18, Responses: 29)
Answered on 07/27/2017 9:50 PM
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The problem with socialism aka class warfare is you eventually run out of other people’s money. So we will need a lot of ongoing immigration to keep the Treasury’s coffers fat and happy.

Millennials prioritize short-term thinking in spending for current experiences instead of saving long-term for materialistic things that are in majority of cases simply unaffordable. Chicken and egg. In my opinion, this just presages the behavorial shift required for the Citizen’s Dividend that will have to be implemented to save socialism. It may even happen without government involvement.

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Posted by (Questions: 35, Responses: 592)
Answered on 08/02/2017 7:55 PM