Have households deleveraged?

Very true! And remember that most defaults from now on are just a transfer of the debt to the USA taxpayer, so no real win there for the economy either. The deadbeat has another name, that's all.

Uf, when you put both back to back ponzis together (housing and then the cost of aging...) it's a great time to take a sabbatical, the workaholics might end up bitter when they realize there's not a whole lot to show for that effort (taxes, wealth redistribution,...). If the ponzis are against you, why even bother?

Riversider, fascinating graph, thanks for posting it.

Those aged 25-35 years old are going to be know as the real estate sector Achilles heel soon imho.

The student debt bubble is concentrated on them. It would be very interesting to have the graph of the average person that age as the real estate market relies on them through household formation and being 1st time buyers. A very hostile labor market entry is not helping. Without the 1st time buyers the ladder that real estate is just falls apart.

notadmin,
what makes me very concerned especially since it's not being focused on is the yet to fully unfold pension crisis. Most pensions have a benchmark return of 8%. They need to generate this and all their assumptions are based on it. With the Fed engaged in ZIRP, the manager is forced to undertake excessive risk, which can only mean objectives will not be realized. So with a 0% rate we have rising present value of liabilities and no ability to meet those objectives, and most debt held by pensions is callable(mortgages is one simple example) so the duration of the liability and asset side get worse and worse.

> yet to fully unfold pension crisis. Most pensions have a benchmark return of 8%.

True true true...add to that public pensions that don't need to account for health care costs of those pensions, Social Security and Medicare...

If you are young, better not to work your ass off till this is solved on your behalf and on your kid's behalf. Without benefits cuts, the country is toast but I don't see the political will to even discuss it, so why bother? These issues are not morale boosters (at least they don't act that way on me, I'm young and fed up with ponzis set up against me).

No, the contention that the process "has not begun" is simply not true. As the graphic demonstrates, total household debt is down 6.4%, the best part of a trillion dollars, from the peak. A battleship like this does not turn in a year or even two, but it has been going slowly in the same direction now for two years. Eyeballing the chart, it looks as if the level is back to Q1 2007 on a nominal basis. Adjusting current levels (YE 2009) to 2006 dollars using the CPI deflator, the level is at $11 trillion, equal to the Q2 2006 level. (Cue Riversider to say that CPI is manipulated by the government and therefore meaningless. In the long run there's a debate there, but if the argument is that it is meaningless over a 3 year horizon then go ahead and cite the changes in methodology (and their impact) during that period.) Anyway, it's a start. There is very big pile to try to whittle down.

On the write-off vs. paydown argument, if that were true wouldn't you expect to see it disproportionately in home equity loans? From the chart it doesn't look as if they have budged (btw, how is that even conceivable?). It looks like credit cards and autos are down the most (% terms; mortgages obviously down the most in absolute $) and those are areas that would be affected by savings behavior - pay down revolving credit cards debt, don't incur more revolving credit card debt, keep the car longer and pay down the loan rather than trade it in for a new one, etc.

sidelinesitter, all you need is to take a look at the savings rate to see that most of the decrease came from write offs, foreclosures, walk aways...

Banks are the major holder of 2nd lien and line of credit debt, so unlike first lien mortgage debt it would be the banks and not investors who would be forced to take the write-downs.

and no side..., the decrease on the mortgage side was as bid as in CC and auto TOGETHER. the plus is that only one area of indebtedness increased, but not really.

it's student debt, which is not a good area to increase for real estate, as it 100% depends on the financial health of the 1st time home buyer.

Lots of good stuff in the Fed report. The big item that is not being universally picked up except by bond market pros, is that the rate at which new loans are transitioning over to non-paymetn status continues to improve. Banrktupcies and foreclosures are going up, which basically says the colon is being cleansed.

http://www.newyorkfed.org/research/national_economy/householdcredit/DistrictReport_Q22010.pdf

"the rate at which new loans are transitioning over to non-paymetn status continues to improve"

but the amount to be lost (most transferred to the taxpayer) is much higher per house that goes to FC. this is a prime wave of foreclosures, the subprime already ended.

I see foreclosures and liquidations continuing to increase for a while, but like I said, most of the people who will not paying already have.

I see foreclosures and liquidations continuing to increase for a while, but like I said, most of the people who will STOP paying already have.

notadmin, It is true that on the lower balance loans which make up more of subprime the recovery rates will be much lower than on the Prime side.

"sidelinesitter, all you need is to take a look at the savings rate to see that most of the decrease came from write offs, foreclosures, walk aways..."

Sorry to intrude on your private agree-fest here, but I did look at the savings rate (did you?). It was below 2% in most of 2007, in the 2s in the first half of 2008 and mostly between 5% and 7% since the 2008 market blow-up. 6.4% in June 2010. So my question is, why would one assume that a 4-5% pick-up in savings rate is unrelated to the reduction in household debt? I think the answer is that when you start with a preconceived notion of how the world works evidence is a distraction.

"and no side..., the decrease on the mortgage side was as bid as in CC and auto TOGETHER"

Sorry, I don't really have time for math lessons (difference between % change and absolute $ change, etc.) so I'll just suggest that you reread my original post.

"but like I said, most of the people who will not paying already have."

based on what?

guess without being good at math, cannot be good at finance 101.

the question is: does the extra $ coming from savings accounts for reduction on debt? given that a lot of the reduction in debt comes from reduction in mtg debt, where is the reduction on mortgage debt coming from? paying it down or walking away?

Another quarter, another $110bn of consumer deleveraging. Fed says it is a mix of paydown and writeoffs.

"Nov. 8 (Bloomberg) -- U.S. households cut their debt last quarter, borrowing less against homes and closing credit card accounts, according to a survey by the Federal Reserve Bank of New York.

Consumer indebtedness totaled $11.6 trillion at the end of September, down $110 billion, or 0.9 percent from the end of June, according to the New York Fed’s quarterly report on household debt and credit. Households have slashed about $1 trillion from outstanding consumer debts since the peak in the third quarter of 2008, the New York Fed said.

U.S. households, facing a jobless rate that’s persisted near a 26-year high, have slashed debt and increased savings following the worst financial crisis since the Great Depression. That’s pared consumer spending and slowed the economic recovery, helping to prompt the Fed’s decision last week to start another round of unconventional monetary stimulus.

“Consumer debt is declining but only part of the reduction is attributable to defaults or charge-offs,” Donghoon Lee, a senior economist at the New York Fed, said in a statement. “Americans are borrowing less and paying off more debt than in the recent past. This change, which we continue to study carefully, can be a result of both tightening credit standards and voluntary changes in saving behavior.”

Individuals paying off their debt crimped their cash flow by about $150 billion in 2009, the New York Fed said. Between 2000 and 2007 borrowing increased consumers’ cash flow by $300 billion a year, according to the district bank.

Household Finances

Consumers are succeeding in improving their household finances, the report showed. Delinquency rates continued to decline, with 11.1 percent of outstanding debt in “some stage of delinquency,” down from 11.4 percent at the end of June and 11.6 percent a year earlier, according to the New York Fed. Household delinquent debt fell 8.2 percent from the previous year to $1.3 trillion, the survey said.

..."
http://noir.bloomberg.com/apps/news?pid=20601110&sid=aeYGBzsDaR10

And a related thread that came after this one and has some information on the write-off component...

http://streeteasy.com/nyc/talk/discussion/22728-the-other-way-to-deleverage

Americans slash nearly $1 trillion in debt - 2 hours ago

http://money.cnn.com/2010/11/08/news/economy/ny_fed_household_credit/index.htm?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+%28Top+Stories%29&utm_content=My+Yahoo