Stop Me Before I Vote Again

Here's the Frisco Fed:

"U.S. household leverage, as measured by the ratio of debt to personal disposable income, increased modestly from 55% in 1960 to 65% by the mid-1980s. Then, over the next two decades, leverage proceeded to more than double, reaching an all-time high of 133% in 2007."

This is not productive investment -- this is usury, aside from some dubious nuggets of "human capital investment". But that's another story.

"In the long-run [household expenditures] cannot grow faster than income because there is an upper limit to how much debt households can service, based on their incomes."

Interesting point, especially considering where we are today. For say 15-20 million of our 115 million households, the system passed the "servicing" point when Bush stole Florida. And yet more was still to come, thanks to a little trick called ultra-low borrowing costs.

The payment has two terms: principal and interest. You can keep raisin' the principal if you keep lowering the interest. Voila! Much much more carrying capacity emerges, till, well, you know.

So now given all those households' likely income prospects, what lies ahead for 'em looks like one huge shitload of "deleveraging", as the business community terms it.

How do they -- we -- get back to a workable ratio of household income to debt service? There's a fork here -- a choice. Either the poor bastards spend less or they default more.

Big benchmark of deleveraging:

"From 1929 to 1933, in the midst of the Great Depression, nominal debt held by U.S. households declined by one-third."

Today, that feat translates into a reduction of around 90% from today's 133%. That nut reduction looks like $4 trillion. Say our current payoff rate is $400 billion -- both stylized reality, of course.

But we're lookin' at a few years of continued tight-belting ahead of us -- well, some of us -- that is, unless more of us just pull the hillbilly barefoot settlin'-up method and walk away from our underwater burnt-grass house lots, and learn -- like me -- to live beneath the plastic money floor created by our chthonic credit gods.

Frisco Fed's sum-up:

"Going forward, it seems probable that many U.S. households will reduce their debt. If accomplished through increased saving, the deleveraging process could result in a substantial and prolonged slowdown in consumer spending relative to pre-recession growth rates."

But soft -- enter the dragon:

"Alternatively, if accomplished through some form of default on existing debt, such as real estate short sales, foreclosures, or bankruptcy... deleveraging could involve significant costs for consumers, including tax liabilities on forgiven debt, legal fees, and lower credit scores."

Suddenly, sober empirical description by these Frisco sages morphs into frantic bank-flacker scare tactics.

Horse feathers! I say -- and they admit as much, once they catch their breath:

"Moreover, this form of deleveraging would simply shift the problem onto banks that hold these loans as assets on their balance sheets."

Presto! Eat it, Scrooge! Eat it all, you bloodsucking billygoat, and tell me you like it!

Ahh, that felt good. But we must all come together in the end, so here's the Frisco kids' parting words:

"Either way, the process of household deleveraging will not be painless."

Stop the presses!