Household Credit - Forgetting the Lessons of the Great Recession

With some experts predicting as many as four interest rate increases by the Federal Reserve during 2018, one aspect of the economy should be concerning to central bankers, that of personal debt, an issue with a direct relationship to the last recession.

According to the New York Fed's own Quarterly Report on Household Debt and Credit for the fourth quarter of 2018, household debt balances have achieved another record as shown on this graphic:

For the fourteenth quarter in a row, aggregate household debt rose in Q4 to $13.15 trillion, an increase of $193 billion on a quarter-over-quarter basis and a substantial $473 billion higher than the previous pre-Great Recession peak of $12.68 trillion which was achieved in Q3 2008.  As well, household debt is now 17.9 percent higher than its post-Great Recession nadir which was reached in the second quarter of 2013.

Mortgage debt is the largest component of consumer debt with total mortgage balances of $8.88 trillion at the end of 2017, a quarter-over-quarter increase of $139 billion.  Mortgage originations for the fourth quarter stood at $452 billion, down from $479 billion in the previous quarter.  

The only upside to the current consumer credit picture is that delinquencies, currently at 4.7 percent, are well below the levels experienced during and immediately after the Great Recession, a scenario that is likely to change substantially should the Federal Reserve, in its infinite wisdom, keep its tightening trajectory:

Nonetheless, of the $619 billion of debt that is delinquent, $406 billion is at least 90 days or more late with a slow but steady increase in severely delinquent auto loans and a significant increase in credit card balances that are delinquent as shown here:

One of the outstanding debt problems is loans to students.  Outstanding student loan debt grew to $1.38 trillion at the end of 2017 with 11 percent of aggregate student loans either 90 days or more late or in default.  

In case you were curious, there is a significant difference in the total debt balance per capita for various states as shown here:

California is a standout when it comes to per capita indebtedness, largely because of severely overpriced real estate in some of the state's real estate markets as you can see from this graphic which breaks down the composition of debt balance on a per capita basis:

Certainly, the overall consumer debt situation, particularly home equity lines of credit, are not at the dangerous levels experienced prior to the Great Recession, however, the long period of ultra-cheap borrowing has lured consumers to consume with borrowed money.  In combination with this:

...the long period of loose monetary policies by America's central bankers have convinced consumers that saving money is simply a waste of time and that it is more fun to borrow, borrow, borrow and buy, buy, buy.  The painful reality of over-consuming with debt may never come home to roost...with any luck.

Apparently, the hard lessons taught by the Great Recession have been long forgotten by many American households.

The National Rifle Association, Wayne LaPierre and America's Elite

On February 22, 2018 at the Conservative Political Action Conference in National Harbor, Maryland, Wayne LaPierre, current CEO and Executive Vice President of the National Rifle Association, made the following comment regarding the gun control debate that has once again flared up after the Florida school shooting that left 17 dead ( 1 minute 58 second mark):

"They hate the NRA.  They hate the Second Amendment.  They hate individual freedom.  In the rush of calls for more government, they've revealed their true selves.   The elites don't care not one wit about America's school system and school children.   If they truly cared, what they would do is they would protect them.  For them, it's not a safety issue, it's a political issue." (my bold)

Here is his speech in its entirety:

 

In this posting, I'd like to focus on the highlighted section of Mr. LaPierre's speech in the excerpt that I have provided in the second paragraph, where he refers to the elites, a clear tactic to divide the United States into two contrasting parts, the haves and have nots as you will.  

While Mr. LaPierre and his viewpoints do make the news cycle on a fairly regular basis, what is rarely discussed, is how much he is paid to proffer his opinions by the National Rifle Association.  Given that he refers to "the elites", let's just look at some interesting data that will help us put Mr. Lapierre and his disgust with "the elites" into perspective.  From the United States Census Bureau, we find the following information on the median household income in the U.S.:

In 2016, the median income for American households was $57,617 but, as you can see, the median ranges widely wider as shown on this table:

In fact, median household income in 2016 ranged from a low of $44,344 in Arkansas to a high of $78,945 in Maryland

Let's look at the average hourly earnings of all private sector employees in the United States and how they have grown over the past decade:

On average, at the end of 2015, the average private sector employee was earning $25.95 per hour.

Now, thanks to the laws that apply to organizations that are exempt from paying income tax, we can get some inside information on the finances of these non-profits from their annual Form 990 filings.  In the case of the National Rifle Association, the entire filing for the 2015 tax year can be found here. Let's look at the first page of the NRA's 990:

At the bottom of this page, you will note that, on average, Wayne Lapierre spends 60 hours per week on NRA business:

Now, let's look at Mr. Lapierre's compensation for 2015 along with the compensation for the rest of the NRA's executive team:

In 2015, as the NRA's Chief Executive Officer and Executive Vice President, Mr. LaPierre's base compensation was $1,090,515.  In addition, he earned $15,000 in bonuses and incentive compensation, $3,810,734 in other reportable compensation, $19,605 in retirement and deferred compensation and $40,131 in nontaxable benefits for a grand total of $5,110,985.  This is up substantially from 2014 as shown here:

...and 2013 as shown here:

As I noted, according to the NRA's 990 filing, Mr. LaPierre worked an average of 60 hours per week on "company" business.  In 2015, his average hourly earnings worked out to $349.52 per hour if we use his base salary and $1638.14 per hour if we use his total compensation package.

Given that Mr. LaPierre's total compensation for 2015 was 89 times that of a median American family and that his hourly earnings were 63 times that of an average private sector worker, it begs the question, who are really the "elite" in Wayne LaPierre's world?  If it's not someone who is making seven figures in a year, then I don't know who it could possibly be. 

Playing the Election Meddling Blame Game

A recent interview on Fox News with Laura Ingraham and former CIA director James Woolsey (1993 to 1995) provides us with an interesting glimpse into the mindset that seems to be pervasive in Washington today.

Here is the interview for your perusal:

Let's look in detail at some of the back and forth of the interview:

Ingraham:  It may not have changed the outcome of the election but the Russians were able to pull off a wide-ranging, aggressive and brazen attempt to interfere in the campaign.  So, can our intelligence agencies stop them from doing this again....This indictment today was wild (the Mueller iIndictment).  I mean they were  organizing all sorts of things.  They were working for that Jill Stein, trying to help her.  They were anti-Trump and pro-Trump on one day after the election.  What's that all about?

Woolsey: They want to be a force and they want to disrupt things.  They call their big overall program "Dezinformatsiya"/disinformation and they've been doing this since the 1920s, 1930s.  What's new is that they do it with cyber.  But they didn't have much luck disrupting American elections back in the 1930s or 1940s but they've been doing that to other countries all along.  Ion Mihai Pacepa, the head of Romanian intelligence who defected in '79, said there are more Russians involved in disinformation than there are in their armed forces.  

Now, let's look at how Ms. Ingraham drags the other potential superpower into the mix since having just a single target like Russia isn't enough:

Ingraham:  How about the Chinese, Jim?  What do they do to try to disrupt things?  They are disrupting a lot of things around the world for us, I know that.

Woolsey:  So far, not the same way the Russians do.  But the Russians photoshopped photographs of the Pope to make him look like he's saluting to a German Nazi officer...they just...

Ingraham:  You don't think the Chinese are involved in this type of activity?  I mean they have an economy that dwarfs Russia's, their standing army of 2.3 million people, they are militarizing space, stealing our technology.  I mean I think it's important that we stop this Russian stuff but every time someone says "Russia, Russia, Russia" I say "China, China, China".

Woolsey: Well, you should.  That's right.  They are strategically a lot smarter.  The Russians  basically are like the old fellow lived next the Lincolns and their farm when he was a little boy, Lincoln said the old boy use to say " I don't need much land, just what adjoins mine".  That's Russia.  I mean I got some Georgia, let's take some Ukraine and that's pretty much (unintelligible)...

Ingraham:  They have an economy that's smaller than the size of France.  Come on, compared to China, like China's eating our lunch on so many fronts.

Woolsey:  (unintelligible)...it gives us some leverage if we can work to get the price of oil down in the 30s well, 40s even, we will create a very, very unhappy Putin.

Ingraham:  But we don't want to push Russia to China though, that's the last thing you want is a Russo - Sino alliance.

Woolsey: We just want to weaken them because we can deal with them a lot better if they are weak.  I mean I was negotiating the conventional forces treaty in Europe in '89 when the Berlin wall went down and you've never seen such nice Russians.  Let me tell you, all you've got to do is destroy their strategy and they are sweethearts.

Let's move ahead to the 3 minute 45 second mark:  

When asked by Ingraham how we can prevent Russian interference in future elections, here's what Woolsey had to say:

"I think what we really want is to get them to start pulling in their horns and coming back out of Georgia, back out of Ukraine.  We need to turn them around because they are taking over even with their military and other inadequacies.  They are taking over a lot more of Eurasia than they should and it gives them heart as they take more and more under their wing."

Here's the key part of the entire exchange, found at the 4 minute and 35 second mark:

Ingraham:  Have we ever tried to meddle in other country's elections?

Woolsey:  Oh, probably.  But, it was for the good of the system in order to avoid the Communists from taking over.  For example, in Europe, in '47, '48, '49 the Greeks and the Italians we (unintelligible)....

Ingraham: We don't do that now though, we don't mess around in other people's elections Jim?

Woolsey:  Well, num, num, num, num....only for a very good cause.  Only for a very good cause in the interest of democracy.

That's democracy, Washington-style.  Exactly what every nation in the world should have and should want.

And it all ends with both interviewer and interviewee laughing.

In closing, let's look at some data on electoral interference by the two global superpowers from Dove Levin's excellent paper entitled "Partisan electoral interventions by the great powers".  Overall, between January 1, 1946 and December 31, 2000, there were 117 partisan electoral interventions made by the United States and the Soviet Union/Russia with 81 or 69 percent being conducted by the United States and 36 or 31 percent being conducted by the Soviet Union/Russia.  This means that, between 1946 and 2000, the United States and the Soviet Union/Russia politically interfered in one of every nine global national-level elections.

Num, num, num indeed.