Monday, January 08, 2007

Caution Flags Are Up

The stuff you won't hear from Larry Kudlow:

"If we use 2005 dollars and the CPI-U (consumer price index for urban consumers), average weekly earnings decreased by about $1 per week over the 30-year interval 1975-2005," writes Wolff. "The folks have thus stopped saving and have taken on massive amounts of housing and consumer debt."

Wolff continues: "In 1999, total outstanding household debt was $6.4 trillion. As of the end of the second quarter of 2006 total outstanding household debt was $12.3 trillion. "Household debt has increased by almost as much since 1999 as the sum total of all debt accumulated by all households across the preceding 220-year history of the [United States].

In 1999, household mortgage debt stood at $4.4 trillion. At the close of the second quarter of 2006 it had more than doubled to $9.33 trillion.

In 1999, consumer credit outstanding was measured at $1.6 trillion. "Today, this stands at approximately $2.4 trillion dollars, signaling a 50% increase in less than seven years. This is usually soft peddled and talked down by comparison to skyrocketing housing values.

Household assets held as real estate increased by $9 trillion from 2000-2006. This might be called the mother of all modern bubbles. Yet household net worth struggled up by a mere $1.2 trillion. Net worth badly lags housing values because of waves of cashing out.

Max Fraad Wolff in the Asia Times

That's why some people don't pay too much attention to the DJIA. Even with the financial-asset gains (Dow at 12,000+), household net worth doesn't get traction against debt.


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