U S Household Debt 11.5 Trillion Due To H P I And M E W

[Realistbear]

http://www.iii.co.uk/news/?type=afxnews&ar...&action=article

WASHINGTON (AFX) -- U.S.

households took on debt at the fastest pace in 20 years

in 2005, fueled by a housing boom that boosted their net worth to a record $52.1 trillion, the Federal Reserve said Thursday.

The Fed's quarterly flow of funds report shows the explosion of debt in the U.S. economy continued in 2005, with net savings in the economy falling below 1% of gross domestic product for the first time on record.

Led by a surge in mortgage borrowing, U.S. households' debt increased 11.7% to

record $11.5 trillion

in 2005, the fastest growth since 1985, the Fed said.

The US population is just shy of 300 million which is about 5 times the UK population. We apparently have 1.2 trillion pounds worth of similar debt or 2.08 trillion dollars (pound = 1.735). Thus, we are not that far behind our HPI brethren. How similar our 2 countries are with the HPI/MEW culture. We will both go down together as in every house crash since WW2.

Edited March 9, 2006 by Realistbear

[FreeTrader]

It's amazing that on a site which is devoted to the expectation of a house price correction, this post was well on the way to dropping off the board without a single reply.

When I posted a thread recently drawing attention to the BoE's release on personal borrowing it suffered a similar fate until Charlie bumped it.

The rate of growth of debt in an economy compared to its rate of GDP growth is fundamental to determining how long a house price boom can continue.

You can argue about VI spin on figures, population growth, demand vs supply etc etc, but none of these arguments can overcome simple mathematics. You can't defeat gravity.

Watch debt growth. Watch for when it stalls. Then you'll get your crash.

[Guest Charlie The Tramp]

The BoE's release on personal borrowing.

See Here

[Prude]

It's spend, spend spend in the US .. lastest US trade report Massive debt driven consumption has got totally out of hand in the UK and the US.

This should further convince Bernanke to start as he means to go on. Rates definately up.. but why go for the long drawn out .25% hikes when faced with such record breaking evidence of continued over consumption. The FED knows now that there are a few more of these .25% rises needed so why not do it in more significant steps? Get the message out with greater clarity by going for the shorter, sharper pain route?

[FreeTrader]

There was an extremely frank speech today by Timothy Geithner, President of the Federal Reserve Bank of New York:

U.S. Monetary Policy in the Global Financial Environment

It's worth reading the whole speech, but if you can't be bothered, what he's essentially saying is that the recycling of foreign central bank reserves into US treasury bonds has driven down forward interest rates to levels that aren't commensurate with the actual economic cycle of the US economy.

In short, the US has been enjoying 'false' low rates which has led to a surge in asset prices (primarily housing). Geithner is arguing that the Fed needs to regain control of long term interest rates to redress the growing imbalances. How the Fed does that is, of course, a matter of considerable debate.

Geithner is a high ranker, and he's ostensibly admitting that the Fed has lost control of monetary policy. They can push up short term rates, but long term rates haven't responded (although maybe they're now beginning to move). This was Greenspan's conundrum.

They're rattled. And well they might be.

[Guest Charlie The Tramp]

They're rattled. And well they might be.

Exactly my sentiments with the MPC. Don`t administer the correct medication in case it makes the patient sick.

[jonpo]

households took on debt at the fastest pace in 20 years in 2005, fueled by a housing boom that boosted their net worth to a record $52.1 trillion, the Federal Reserve said Thursday.

anyone with more than a pre school education in economics would know that

net worth= assets - liabilities;

hence contary to poular beleif taking on debt at a record pace is not going to help anybodys net worth.

[lowrentyieldmakessense(honest!)]

anyone with more than a pre school education in economics would know that

net worth= assets - liabilities;

hence contary to poular beleif taking on debt at a record pace is not going to help anybodys net worth.

thing is people include their home as an assett and so they think as long as this is going up faster than their liabilities they are ok.

[Realistbear]

Greenspan was troubled by the "conundrum" in the US economy--the more the Fed raised rates the cheaper borrowing became (mortgage rates). This was a signal that the imblances would have to unwind or hyperinflation would follow. My guess is that the Fed will have to tighten well beyond anticipated levels with 6% not being out of the question by the end of this year. The Dow is starting to price this into the market which may explain weaknesses in equities in the face of a growing economy and healthy employment.

The UK is a mirror marketplace and it cannot be long before the B o E is forced to take similar action with IR headed up by the middle of the year. Greenspan was not concerned about eliminating "froth" in house prices as he saw the good of the greater economy was more important. Let us hope that his position as economic advisor to Gordon Brown will instill some sanity at the B o E and No. 11.

The probablility that we will see some falls in house prices toward the late Spring and early summer is very high IMHO given the heightened level of IR sensitivity.