Ritholtz charts on how household deleveraging slows recovery.
I think this is correct. US consumers are still repairing their household balance sheets which have been distorted due to super easy credit.
From the comments:
“The United States economy is like a poker game where the chips have become concentrated in fewer and fewer hands, and where the other fellows can stay in the game only by borrowing. When their credit runs out the game will stop.”
-Marriner Stoddard Eccles, Beckoning Frontiers (1951)
Banks are sitting on reserves because they know how many dogshit mortgages they sold and they are aware they will not get bailed out a second time if they don’t have the reserves to cover their loan losses.
As noted in the comments the two metrics to watch are the default/foreclosure rate and the unemployment rate. Seems you could model by bank when they are most likely to need reserves when their variable rate loans reset, pushing borrowers into trouble.
Check that. Variable rate loans aren’t going to reset higher in the current near-zero interest rate regime. Banks are holding reserves indefinitely since they don’t know when interest rates will rise again and they don’t want to get caught flat-footed when they do rise again.
Credit Writedowns asks, ” Are Michigan and Illinois like Greece and Ireland?.”
The probability of default for Michigan reached a high of 800 basis points in early 2009 (approximately a 1 in 12 probability of defaulting over the next year) and was actually well above Greece and Portugal at that time. Greece’s default intensities ramped up in January 2010 with the Greek debt crisis and at the beginning of 2011 were over 1200 basis points (approximately a 1 in 8 probability of default over the next year). Ireland’s default intensity rapidly increased in May 2010 when the market started to realise that Ireland’s initial bailout arrangements were probably insufficient to prevent a default. Ireland’s default probability over the next year is well over 10%. Illinois and Michigan’s default probabilities are about half this level, with probabilities of approximately 5% of defaulting over the next year.
A discussion and some charts around the death of the music industry. The money quote:
10 years ago the average American spent almost 3 times as much on recorded music products as they do today.
26 years ago they spent almost twice as much as they do today.
The relationship between soverign debt and the percent of European men aged 25-34 living with their parents.
If he lives with his parents, you might want to think twice. About buying his government’s debt.
via The Great Startup Game:
1. Vague notions of a liquidity event
2. Differences in valuation
3. Profit sharing
And the remedy is? As they say, “Read the whole thing.”
Could it happen in the US as governments face revenue shortfalls?