Money Money + Money -- Money Supply

I'd like to thank Annaly's blog for introducing this bit of data to me. The Fed stopped producing the M3 money supply series several years ago and while there are some common attempts to recreate the data series I prefer to publish data I can get my hands on and cite.  Shadowstats.com produces the most well known M3 series.  As you can see M3 growth has recently fallen onto the negative side of the ledger.

Annaly recently wrote about M2 + Institutional Money Market Funds which I have reproduced here.  Over time I'll include some additional data in the graph so you can see the long term relationship between money supply growth and inflation. Right now the important point is money supply growth is negative on a year over year basis, something that has not happened over the entire data series. 

This is another example of the decline in lending, money supply, et al, occuring in America.  What do you think will happen as all the government stimulus starts to unwind?

Total consumer debt continues falling & Consumer debt / GDP perspective

Total consumer debt statistics (all debt including home loans) came out recently and the credit decline continues.  I have produced a couple of graphs to provide some perspective on the data. 

Year over year consumer debt is still falling but at least we are no longer speeding up in our rate of decline.  Looking back you can also see we have not had a period of negative growth any time during the entire data series.

Observing total consumer debt to gdp (both in nominal terms) provides some interesting fodder for discussion. During the 1990's consumer debt / GDP rose <10%. Compare that to the 2000's where the growth rate was much faster. 

The consumer debt / gdp ratio has consistenly risen over the long term.  This ratio cannot rise forever!  Is parity where one starts to encounter serious problems? 

The Wall Street Journal ran a page one article regarding declining debt Friday, March 12 describing how defaults are reducing the total debt load of American consumers.

U.S. consumers are shedding debt at the fastest rate in more than six decades, largely through a wave of defaults, in a trend that underscores the depth of their financial troubles but could also help clear the way for a stronger economic recovery.


Total U.S. household debt, including mortgages and credit-card balances, fell 1.7% in 2009 to $13.5 trillion, the Federal Reserve reported Thursday—the first annual drop since records began in 1945. The debt amounts to $43,874 per U.S. resident.

While some of the decline is from consumer defaults, this is not a 'pain free' method of debt reduction.  Banks become capital deficient and reduce their lending when they take losses in excess of their models.

Longer term it is healthy for the economy to have a lower debt load but the path there is not easy.

Temporary workers increase year over year. Good news or a head fake?

Temporary worker employment has finally turned positive on a year over year basis.  Unfortunately this could be a head fake due to the current census temporary employment surge going on right now.  Fortunately the temporary census workers employment blitz should be over with before the usual seasonal peak in October / November.  If the seasonal peak of 2010 is above that of the previous year we may have a 'positive' bit of news to share with the world.

Loan sharking Greece, I see someone in Germany is reading my blog

I doubt I have that much influence on German M.P's as the idea of posting collateral for a loan is not that exotic. . .

"The Greek state must sell stakes in companies and also assets such as, for example, unpopulated islands," Frank Schäffler, a member of parliament for the pro-business Free Democrats, told the Bild daily.

Getting the Greeks to hand over title after they default could be another matter.  For those of you who think that unlikely; Greece has spent the majority of time since 1800 in default.  (This Time Is Different, 2009, page 98 & 99)

Home loan delinquencies continue hockey sticking

Here's some additional news to reiterate what I mentioned yesterday....

Both the percentage of people behind on their mortages and the number of homes owned by the GSE's continues to climb.   I was hoping that some of these data points would start to at least level off but alas I'm too optimistic.

To quote calculatedriskblog:

Even with all the delays in foreclosure, the REO inventory has increased sharply over the last two quarters, from 135,868 at the end of Q2 2009, to 153,007 in Q3 2009, and 172,357 at the end of Q4 2009.


Fannie Mae reported last week that the rate of serious delinquencies - at least 90 days behind - for conventional loans in its single-family guarantee business increased to 5.38% at the end of December, up from 5.29% in November - and up from 2.42% in December 2008.

Until both of these data series start to actually decline real (inflation adjusted) home prices will not appreciably go up. 

Living Rent Free

Trader Mark from fundmymutualfund.com had a great post about the apparent disconnect between income and spending -- it's not adding up.  I had my own suspicions about this but TraderMark does a much better job skewering several sacred cows so I'll defer to his rapier and wit:

I was looking through the avalanche of economic data today, and it struck me how once again Americans are spending well over their income growth.  

I've written about this in the past in conceptual terms but never put it into an analysis. The true stealth stimulus plan in America is letting so many of its people live "rent free" as they sit in defaulted homes not making a mortgage payment. This "cost savings" allows them to shop and spend, and otherwise support the American consumption society.

From anecdotal stories (many of them) it is now taking at minimum 9-12 months to get evicted, and that's in states without super high foreclosure rates. I read the other day some Florida locations are 2+ years now. So 9, 12, 15, 18 months of not having to make a $1200, $1500, $1800 payment. And it can go longer now if you enroll in the trial modifications offered by government, then redefault. If you are really good at playing the system you might be able to go through two whole default cycles with the trial modification in the middle. 3 years of rent free living? Nirvana.

Further, with the new accounting rules that were the nexus of the market rally in March 2009, the banks no longer had to mark value of assets on their balance sheet to market... so they can now mark to what they see fit. Hence this system works for them too. All these foreclosures they should be closing on are things they are in no hurry to do... because doing so would mean they need to stop pretending about the true valuation of these defaulting mortgages and start admitting reality. Don't you love what 1 change in accounting rules can do for a country? ;)

My suspicion is the banks decide how much of a loss they want to take on home loans each quarter and then foreclose enough homes to make that quarter.  (The easiest number for a bank to hit for the next several years!)  The Feds are turning a blind eye as they are terrified of another drop in home prices and want to keep the banks 'solvent'  All the mortgage modification programs give cover to the banks to delay foreclosures and regulate the supply of homes hitting the market. 

How does that saying go??? Owe the bank $10,000 and they own you, owe the bank $50 million and you own the bank.  In America we can do it better:  Own a trillion in mortgages and you own the US Government.

Inflation update

Inflation numbers came out a little while ago and it continues to show a decline in overall inflation rates excepting the volatile food and energy segment.   All the data shown is year over year, non seasonally adjusted.  

Core CPI inflation (line in Red) continues a slow decline.  CPI Housing (line in Green) remains stuck at below zero and will most likely remain there for a while.  The Wall Street Journal has some more detail on the data.

For all of you looking for inflation, where is it?  Money supply is falling (I'll post about that soon(tm) ), credit is contracting, the dollar is getting stronger, and inflation is falling.  Longer term I concede it is possible but over the next 12 months I don't see it.