Kneale: You Asked For It....

So Dennis Kneale decides he's going to cite me this evening on his show, claiming that I make a "decent argument" but fail to present numbers.

Well Dennis, I don't think I should have to recite the last two+ years of numbers, nor the litany of new Fed Credit programs, nor the consumer credit numbers which were released today and which your network reported this afternoon, when you're the one claiming that "the recession is over" and argue against the credit recession position I put forward.

But since you didn't bother with these nasty things called "facts", I'll do it for you.

Here's the consumer credit numbers that your network talked about today when they were released (click for a full-size window):

Now I want you to pay particular attention to the current total leverage held by consumers - that is, the total amount of debt, excluding mortgages.

In 2004 consumers held $2.191 trillion.  At the peak, they held $2.582 trillion.  Today, less than three quarters later, they have cut back by an astounding $62 billion dollars in total, or a whole 2.36% - an absolutely inconsequential amount.

Consumers have de-leveraged?  Uh, no.

In the meantime the claim is made that financial institutions have taken down leverage.  Oh really?

Let's start with this (click for full screen)

That's total credit market instruments, all sectors, and it is still rising.  In fact, it is rising fast - very fast!  Currently at $52.9 trillion dollars, up from $50.7 1Q 2008, and up from $31.9 trillion in 2002.  (For those who argue this isn't "very fast", what was the GDP growth, all-in, during that same period?  Less than the 4% that credit expanded, right?  That's the problem, in a nutshell - its called exponents!)

The Bank of International Settlements (BIS) says that the total amount of outstanding derivatives has reached a nearly-incomprehensible $1.28 quadrillion dollars.  Oh, and this does not include derivative positions related to the commodity markets.  Further, the outstanding amount has increased at a double-digit percentage rate over the last 12 months.

European banks are still geared at 30, 40 even 50:1.  Go look up the leverage ratios for Deutche Bank, among others.  Make sure you're sitting down.  Our own banks have refused to take their SIV and other off-balance-sheet garbage back onto their balance sheets, and thus are intentionally understating their leverage ratios.  Fannie and Freddie are still geared at over 80:1, although under conservatorship.

Our banks have de-leveraged?  Uh, no.

Now, The Fed.  Its balance sheet has more than doubled and is now approaching $2 trillion dollars - a near-100% gain in the last 12 months.

The Fed has de-leveraged?  Uh, no.

Our government is next up.  Let's cite the NY Times:

Through April 30, the government has made commitments of about $12.2 trillion and spent $2.5 trillion.

Our total outstanding public debt is about $6 trillion, up by a full trillion in the last year, and we're on-plan to add $1.8 trillion to our public debt this fiscal year - that's a 30% increase Dennis.

Government has de-leveraged?  Uh, no.

All these facts have been reported on your network Dennis.  I shouldn't have to list any of them, as you should know all these facts - they're literally "in your face" every single day.

We are in a credit recession.  We cannot get out of the credit recession until the conditions that led to it no longer exist.  The conditions that led to it are too much debt and too much leverage, and yet the prescriptions of both the Bush and Obama administrations are to add even more debt and more leverage to the system, shifting bad debt around and stuffing it under the rug in an attempt to hide systemic insolvency, rather than force it into the open and demand that the excessive leverage and debt be either paid down or defaulted.

Consumers are in a mad dash to pay down debt rather than default where they are able, but as you can see they've only managed to get rid of $60 billion - that's the shift in the "savings rate" you're seeing.  As I've noted consumers are not saving, they're paying down debt - but at this rate it will take five or more years before consumers alone are sufficiently de-levered, and that will leave all of the nearly $14 trillion dollars taken on in additional leverage by our government to prop up failed institutions outstanding.

No Dennis, the recession is not over, and until our government stops propping up the liars and thieves, preventing the bad debt from being defaulted and removed from the system, any relief from this economic malaise will be fleeting at best.

There's the numbers behind my argument Dennis - and the proof.

You're wrong.