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Mix-Ansicht- Gretchen hat Kasriel entdeckt - CRASH_GURU, 30.11.2005, 07:08
Gretchen hat Kasriel entdeckt
-->After the Debt Feast Comes the Heartburn
By GRETCHEN MORGENSON
Published: November 27, 2005
The New York Times
"We have a very accident-prone economy," Mr. Kasriel said."We have the most highly leveraged economy in the postwar period, and the Fed is increasing rates. In the past 30 years or so, whenever the Fed has raised interest rates, we've quite frequently had financial accidents."
Much has been written about the deeply indebted consumer, of course, and even more about the bubble in real estate. But Mr. Kasriel is especially persuasive because of the data he presents to support his gloomy view.
If a financial blowup occurred, the unhappy fact is that few consumers would be able to walk away unscathed. After all, over most of the last five years, American households have spent more than they earned. In contrast, for almost 30 years beginning in 1970, the opposite was true: households earned more than they spent.
Here's a stunning figure: In the third quarter of 2005, Mr. Kasriel calculates, households spent a record $531 billion more than their after-tax earnings, on an annualized basis.
These non-stop shoppers have propelled consumer spending to a record high as a share of gross domestic product - 76 percent in the third quarter, Mr. Kasriel said, up from 73 percent in 2000.
Real trouble could begin, Mr. Kasriel fears, with a decline in property values, the assets backing the enormous debt of consumers and banks alike.
And how those assets have grown. Bidding wars for homes have driven the value of residential real estate to a record 204 percent of disposable personal income, according to Mr. Kasriel; in 2000, the figure was around 150 percent.
CONSUMERS are not alone in their love affair with real estate. Portfolios at United States banks are also mightily laden with such assets. In the second quarter this year, Mr. Kasriel said, 61.7 percent of banks' total earning assets consisted of mortgage-related holdings. Ten years ago, that share was 48 percent; in 1987, it was just one-third.
But now, because many consumers have come to use their homes as cash machines, the properties have much less equity in them. In the second quarter, for example, homeowners extracted $280.3 billion in equity from their properties, down only slightly from the record of $306.1 billion at the end of last year.
Other gauges point to danger. Mortgage debt as a share of the market value of residential real estate now stands at 43.2 percent, Mr. Kasriel calculates, up from 33 percent in 1987.
"Real estate has become the new asset to enable people to get rich without working," he said."When that slows down, it is going to have a ripple effect on the rest of the economy. We have people who don't have a lot of equity in their houses. If the price goes down, they are going to be tempted to leave the keys in the mailbox and let the lender know it's his again."
Not that Mr. Lender will want it. Such a situation occurred in the early 90's and the banking system buckled.
Problems among banks, of course, are unwelcome anytime because their lending is the conduit used by the Federal Reserve to jump-start a slowing economy. If banks are unwilling to lend, an economic recovery is harder to achieve.
"We had a similar situation when Greenspan cut interest rates to an unheard-of level of 3 percent in 1992," Mr. Kasriel recalled, referring to Alan Greenspan, the chairman of the Federal Reserve."It had little effect on the economy because our banking system was temporarily out of service." Back then, banks were bleeding money in their commercial real estate holdings.
If consumers start to sense that their homes are falling rather than rising in value, they will have to return to the days of spending less than they earn. Quaint. And almost un-American.
The Christmas season will provide clues to any change in behavior. Last week, a survey of 5,000 households by the Conference Board noted a small drop in shopper enthusiasm. Households, the survey said, intend to spend $466, on average, on holiday gifts this year, down $10 from last year. This is only the sixth year since 1990 that planned spending has declined, as measured by the survey.
To be sure, what consumers say very often differs from what they do. And consumers' borrow-to-spend funfest of recent years is not likely to stop on a dime.
But if Christmas sales disappoint this year, it could be because American consumers, who have never been more leveraged, are awakening to this economic truth: the assets may shrink, but the debt doesn't.
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