Albert Edwards at Societe Generale says January 2008 is here again! UK and US household debt excess comes full circle.
From Albert Edwards Via Email
Very recent data confirms slumping household saving ratios in both the US and UK. This was last seen in 2007, just before the bursting debt bubble blew the global economy and financial system to smithereens. The Fed and BoE should surely hang their heads in shame having presided over yet another impending disaster. Why will politicians and the people tolerate this incompetence? Indeed they won’t.
The US has just this week seen substantial downward revisions to its household saving ratio (SR). Some 1½% has been lopped off recent estimates, taking the SR down from a respectable 5½% to just 3.8% – levels seen just before the last recession. The UK has also recently published some shockingly low household SR data, showing a slump in Q1 to only 1.9%. Actually, the UK’s situation is worse than it looks relative to the US SR if you measure it on the same basis. The US measures household income and savings net of depreciation mainly of the housing stock. If you add this back (as the UK does), the US household gross SR is some 3% higher.
At 7%, the US gross SR looks positively Germanic for its high level compared to the UK! But it is still disturbingly low relative to US history. In addition, the sharp 2% decline over the last year has helped to sustain what has only been moderate consumer spending and GDP growth at a time when real wages have been squeezed.
The UK has also only sustained moderate GDP growth via a total collapse in the SR to unprecedented historical lows, but also relative to the levels of the credit crazy US. The BoE recently warned of a spiral of complacency about mounting consumer debt. But, of course, there is no acknowledgment of its own pernicious role in this unfolding disaster.
The US Bureau of Economic Analysis has this week undertaken some revisions of the US saving ratio (SR). Actually, it has revised both income (downward) and expenditure (upward). And as the SR is the difference between these two very large numbers, it can be severely affected by small changes in income or spending. The new data shows the US SR actually declined from 6% to 4% through 2016 (see chart below) and undoubtedly stopped the US economy sliding into recession in the second half of last year as real household incomes suffered a severe squeeze due to rising headline CPI inflation.
The Fed has had its way. QE has not only inflated corporate debt to grotesque levels, but finally the US SR has responded to the surge in household paper wealth that QE has produced. Typically the SR declines with rising wealth.
Why do you need to bother saving if interest rates are close to zero and house and stock prices are rising?
GDP averaged a mere 2% during the recovery, and it is taking ever-increasing amounts of debt to achieve that.
Mike “Mish” Shedlock
This is all interesting but EURCHF is the big story. Huge reversal of late. How much CHF weakness before SNB moves? SNB can’t be buying stocks anymore…
SNB is probably buying thru Belgium like the FED does.
Credit has been growing 3-3.5x as fast as GDP. As per the H8 survey its stalling out
The big story is EURCHF. SNB no longer a buyer? What a move. Its all about policy.
” Why do you need to bother saving if interest rates are close to zero and house and stock prices are rising?”
That was my first thought… why “save” when interest rates are intentionally kept low to divert money into the stock and housing bubbles.
I have an IRA CD coming due next month. But the best interest rate at the same bank is now less than it was three years ago.
German Household savings rate is 16%
The Japanese also have a high savings rate, part of the covenant of the AXIS powers
Something else (but related) deserves attention: There have been 8 Hindenburg Omens this July and several others in the 2 months before. I know that this signal is unreliable, but the high frequency of it deserves some attention. If I remember correctly, the 2008 stock market crash started in September…
John k said:
Right. The big bank failures happened in September.
Tony Bennett said:
“Why will politicians and the people tolerate this incompetence? Indeed they won’t.”
Indeed they will.
A lot of “no one could have foreseen this” … followed by “Central Bankers … SAVE US”.
NIRP and QE just chillin’ in the dugout … waiting to be called.
Exactly. The central bank is basically following orders from Congress, the White House, and Wall Street.
Main street never gets a say in the matter so tolerate it they must.
The Lege said:
I dunno …. one day the people will get so angry the politicians will have no choice but to hang the Central Bankers out to dry — in order to avoid getting lynched themselves.
Thaddeus Thurston Thistlethwaite III said:
The bankers own the politicians, though…
The investment bankers do, yes, but not the central bankers.
The central bankers are just useful idiots.
Reblogged this on World4Justice : NOW! Lobby Forum..
It has gotten very interesting here. Bonds peak last year. Decent fiscal thrust from collapse in rates/bond peak keeps economy rolling and bond money flows into stocks. Now the US sports a higher low in inflation, and the 5y5y inflation forward is rallying. Oil has a higher low. EURCHF has reversed course. Inflation signals everywhere. Low savings rate to boot. Stocks on their highs. Fed will move into QT despite it being a reaction to itself.
Tony Bennett said:
“Inflation signals everywhere.”
You got it completely backwards.
PCE price index year over year
January … +2.0%
February … +2.2%
March … +1.8%
April … +1.7%
May … +1.5%
June … +1.4%
Best still to come for Treasuries.
I think the deflation will be tough to avoid as well, however, the ultimate hubris for the policy makers is policy induced inflationary spike that forces them to react. They say they want inflation but they really don’t….
and PCE Px YoY in 2015 was over 100 bp below the recent soft readings. the CB only cares about the trajectory. A clear low in the series(2015). A clear higher high and is this summer the higher low? Just trying to be open minded here. Does the Fed see a rising trend if PCE Px prints 3% next year? How risk can they take of that without taking away more accommodation?
Tony Bennett said:
Deflation it will be.
Read yesterday’s “transitory” post. Federal Reserve for years has attempted to gin up sustained inflation … to no avail.
And now – at the tail end of the business cycle – they will prevail?
I think not.
The markets have less to do with the economy than ever in our lifetimes. The CB’s have not let markets clear for some time while massively expanding the monetary base. This does not solve the root causes of the deflation; demographics, excess leverage and technology. Indeed the price distortion exacerbates the ultimate deflationary outcome. What gets the CB’s out of the way is an inflation surge that forces their hand. Then the tears come. The windup is almost a decade in the making….
Tony Bennett said:
I agree with most of what you say. But until the debt overhang addressed (write down / write off / pay down) I see no sustained inflation.
Japan has tried – for decades – to boost inflation. Failed as debt overhang continued to grow.
“GDP averaged a mere 2% during the recovery, and it is taking ever-increasing amounts of debt to achieve that.”
And that’s using the government’s lying statistics, which overstate growth, and understate inflation…
its a remarkable machine. helicopter bonds. Fed has already hiked 100 BP. what is the true rate of inflation? this is the primary problem. a market based system of capital allocation where nobody really knows what the price it is. does anybody really care?
so why save?
Maybe “why save/” is the wrong question. HOW CAN one save when wages are stagnant and taxes are increasing? In that environment even a couple percent up or down in consumer prices is meaningless because wages and taxation are the largest portions of income and outgo.
You buy a house with a manageable monthly payment. You then get a 1% raise at work, and then you get a 3% raise in your mortgage payment because of tax increases. Food and clothing you can manage around, wages and taxation you can’t. And this isn’t even taking health care premiums into account. When you DO take it into account, you basically can’t save.
Which makes Bernanke, Krugman, etc. all happy because savings gluts are bad, mmmkay?
Jim Rickards says fed policy makers have it backwards. They assume that reducing savings rates will encourage investment and spending, Rickards says it means that people who have to save must save MORE in order to accomplish their goals. I tend to agree. Because there is much less economic opportunity to accumulate wealth, the wealth that is held becomes more valuable, so even if you lose interest you gain value if you can hold onto it. Insurance of all kinds (gold) represents a negative savings rates, so be it. The Fed in effect is only pricing the (bond) market according to where it should be.
Medex Man said:
Socialism sooner or later runs out of other people’s money.
I would be interested in what types of general investments you think prudent. If you can, thanks
Gold – Treasuries – miners – I am in some bio plays one is a private placement that I think will be a home run. Junio minors purchased early in 2016 or late 2015 were a huge winner
Energy has a look. There is a lot of magical thinking out there right now, electric cars don’t use fossil fuel. One solar panel produces enough energy to make two. My reasons to own gold are not the same as everyone else. Reason one there will be a lot more poor people and the poor love gold most of all.
BoE are beyond description under Carney.
There was no need for the cut after the Brexit vote, indeed a small rise might have been in order.
Did he blow bubbles in Canada?
vooch, Germans are rightly scared as US, UK consumers is maxed out and Euro NIRP is ass about face. Consumer retrenchment will hit UK, US economies but possible hard hit to the big exporters too. A wave of deflation in the offing.
Germans are rightly scared that their country is turning into a dictatorship, whose purpose is to import maximum amounts of 3d world savages…
You might spend some time away from your double-wide.
1.5 million refugees out of a population of 82 million. That ain’t anything
The current size of the German army is just over 60,000 on active duty.
Compare that to about 1,500,000 refugees, most of whom are young Muslim men.
If 10% of the refugees became organized into a paramilitary force, they’d outnumber the German Army 2.5:1.
If 20% organize, then it’s 5:1.
Their numbers are also increasing every day.
The number of young native Germans of prime military age is in an irreversible demographic decline.
The Muslims gain strength while the Germans lose strength.
Food for thought, at the very least.
Could be Putin’s stealth army…
that is how he conquered Crimea.
Former NATO chief Breedlove said
Putin had “weaponized” the refugees
pouring into Europe.
they have therapy for your condition. It’s treatable.
BTW – look up Schützenverein. 1,500,000 we’ll trained and German level
efficiency homeguard militia. These guys defend their towns and villages with tradition going back centuries.
Will scared money run to the USD?
What is USD:Euro saying?
position in short EURCHF is gigantic. look at the SNB’s asset positions. its the euro not the usd. lots of CHF around suddenly
Euro rally is a classic bear market reaction, so Commercials are shorting the rally.
Time to pull the pin on the last grenade: true massive fiscal deficits. Not printing money to buy assets which just substitutes one asset class for another on cb balance sheets. The globes are coming off now. Print and spend not print and purchase assets. Roads, bridges, wars, you name it. Deficit spending lever set to ludicrous speed, then a lag of up to two years, then inflation big time. We are all Argentinians and Venezuelans now.
Medex Man you are getting irritating. I do not read comments quickly if they go into moderation. I have other things to do, like write posts and research things. If you have a complaint about a post make it.,
I told you to email me to go over what may be happening to your comments going into moderation. You refuse to do so. Until you do, stop whining.
I removed the John Smith Comment
If anyone finds a racist comment, email me and flag it.
Please tell me what article it is in so I do not have to hunt for it.
this comes close
“Germans are rightly scared that their country is turning into a dictatorship, whose purpose is to import maximum amounts of 3d world savages”
The Real John Smith said:
I’m thinking agency mortgage bonds – the security of long term treasuries without the duration risk.
read the offering memo with a fine toothed comb. Lots of these agenciy bonds are bundles of debt of ‘unrated’ entities. Many agency bonds that appear to be mortgages secured by r/e are secured by nothing.
I spent a couple of weekends reviewing the agency & muni bonds in my portfolio put their by my super super expert adviosor ($400 billion AUM). Of the 34 bonds, 13 were dreck, 10 were not so dreck, and 11 were decent. All AAA rates of course. No correlation between interest rate and my risk rating.,
Just a thought – what happens if nothing happens this autumn or sooner?
The VIX is at historical lows, indicating extreme complacency. Extreme readings of any metric often precede trend changes. SOMETHING is about to happen.
C Jones said:
Mish, why is this surprising?
At the end of the day, there is no incentive to save so you shouldn’y be surprised people aren’t doing it. In fact, wasn’t that the point of QE anyway?
Compare the differences in UK to pre and post credit crunch. In 2007 the maximum allowable pension pot in the UK (£1mm) would generate £55,000 income annually sitting in safe short dated UK govt bonds. Today that same pot generates about £2,000 annually.
In the former case, you can live very comfortably off that – a strong aspirational incentive to save.
In the latter case, would you even notice the difference if you didn’t receive it?
But that’s before we talk about compounding and how you get to retirement:
a) £10,000 at 5% for 40yrs compounds to £70,400.
b) £10,000 at 0.10% for 40yrs compounds to £10,400
Again, the former case is a strong aspirational incentive to save. In the latter case, is there any point?
Wish – I put it to you we have well passed the point where it is rational to save.
I have an IRA CD coming due next month. But the best interest rate at the same bank is now less than it was three years ago
“Savings” you say ?
Explain to me how you could possibly call depositors money “savings”, at least in the EU and USA, when the law now legalizes BAIL INS, and defines a “depositor” as “an unsecured creditor”. That means these “institutions” can ram it up your butt until you’re seeing stars.
And you can be most assured they will.
We’re all “goyim” now.
Ambrose Bierce said:
Personal saving rate is percentage of DPI and DPI is heading higher, hence the same amount of savings is a lower percentage.