FICO: Debt falls for most, rises for poor

source: http://www.fico.com/en/Company/News/Pages/09-26-2013-FICO-Labs-Data-Shows-17-Percent-Rise-in-Debt-Among-Late-Paying-US-Consumers-Since-2007.aspx

While most consumers are still reducing debt, those already behind on payments have piled on more since 2007 (17% more). According to the FICO report, total consumer debt has dropped, but those at the back of the debt treadmill are falling off the end. The credit system is structured so that the least creditworthy pay the highest rates. Once you get behind on payments, the system will grind you down.

The FICO report of a net decline in consumer credit is at odds with the Federal Reserve report which shows a not seasonally adjusted net increase of over $200 billion since 2008. The FICO report was based on credit records of about 19 percent of the population which is usually enough to be statistically valid. Both reports showed a big increase in student loan debt.

Political Economy

I added two political links, politico.com and politicalcalculations.com, to the blog list to emphasize the importance and inseparable nature of politics and economics. The economy determines how much wealth is produced, but politics determines how it is distributed.

Glaring examples are tax law (mortgage deductions, business expenses, earned income credit), accounting rules, fiscal stimulus, austerity, farm and oil subsidies, military contracts, section 8 housing, SNAP (food stamps), unemployment, ACA, etc. Governments at all levels shape laws to encourage or punish behavior as they see fit. Laws are used as social engineering tools with big economic consequences for the political winners and losers.

The best tracking charts and forecasts on the economy can tell you something about the size of the pie, but not much about how the pie is distributed.

M2 and inflation

I was looking at different measures of money supply vs. inflation and M2 appeared to have the best correlation (compared to M1 and MZM), with about a 2 year lag. M2 Money Stock is roughly equal to cash and checking plus savings and CDs. The correlation looks less useful after the year 2000, perhaps due to more aggressive monetary policies. It is still growing at about a 7.5% YoY rate, but is below its own exponential trend. To stay on trend, it needs to grow to $20 trillion by the year 2020.

Obama's Better Jargon, Boat of Gloat v.4

The White House has published some details on what the President calls the Better Bargain, trying to evoke something akin to the FDR's New Deal. From Wikipedia:

The New Deal was a series of domestic economic programs enacted in the United States between 1933 and 1936. They involved presidential executive orders or laws passed by Congress during the first term of President Franklin D. Roosevelt. The programs were in response to the Great Depression, and focused on what historians call the "3 Rs": Relief, Recovery, and Reform. That is Relief for the unemployed and poor; Recovery of the economy to normal levels; and Reform of the financial system to prevent a repeat depression.

The "Second New Deal" in 1935–38 included the Wagner Act to promote labor unions, the Works Progress Administration (WPA) relief program (which made the federal government by far the largest single employer in the nation),[4] the Social Security Act, and new programs to aid tenant farmers and migrant workers. The final major items of New Deal legislation were the creation of the United States Housing Authority and Farm Security Administration, both in 1937, and the Fair Labor Standards Act of 1938, which set maximum hours and minimum wages for most categories of workers.

IMO, the keys to economic recovery from the Great Depression were reform of the financial system (SEC, the investment act, Glass–Steagall, FDIC, etc.), reform of labor laws that increased the power of labor (Wagner act, FLSA, etc.), plus Social Security, WPA, and the TVA. In contrast, Obama's Better Bargain consists (so far) of a few minor tax tweaks for business, a recognition that college tuition increases are out of control but a failure to understand that easy federal student loans have caused tuition to skyrocket, and empty talk about avoiding the bubble-bust housing cycle while in the midst of the second housing bubble.

There are no bold initiatives to take power away from financial institutions and give it to workers as FDR did. The weak attempt at financial reform, the Dodd-Frank act, has been only partially implemented, while most of it has been delayed, watered down, or ignored. Glass-Steagall remains repealed and financial profits as a percentage of the economy are spiking near all time highs while real median wages continue their long decline. He wants a bigger role for private mortgage financing but has no plan, while the Fed is buying $45 billion a month in mortgage backed securities.

I guess the President has been too busy trying to convince the rest of the skeptical world to attack Syria. A strange sense of priorities!

Obama's Bargain is mostly Jargon and for that he earns the Boat of Gloat.