Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
Jeff - - -
I hope someone will comment who has more detailed understanding than I do at this point.
But let me take a SWAG at it. If a bank has $1,000 of consumer credit debt on its books paying an average of 20% annual interest and 10% of that debt defaults, the balance sheet looks something like this:
$900 still current at 20% = $180 10% default loss = $100
Net gain = $80
Somebody in accounting will have to tell me how hard it is to hide the default loss and simply report a balance sheet gain of $80. That would be 8% return on the original $1,000 or 8.89% return on the adjusted book of $900.
This may be way too simple a view of what is happening but conceptually might be close to the actual facts.
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
levin70 - - -
I see the numbers you quoted in Table 2.6 of the BEA report. I would not interpret them the way you suggest.
In January 2009, the total of personal savings was $614.9. In August 2010 it was $661.9 billion. The difference is $57.7 billion for the 20 months.
However, I suggest you look across the intervening months. You can see that total personal savings is very noisy data. This is because it is calculated by taking the difference between two very large numbers (line 22 - line 23). Small changes in the large numbers can give large changes in the differences.
That is why I chose to use the change in disposable income which, although it bounces around, is much more stable than the accumulated savings calculated as it is.
One other factor that relates to your comment: Reducing credit outstanding has the same effect on net worth as the same amount saved. Thus defaulted debt has the perverse effect of reflecting increased savings.
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
doubleguns - - -
Mortgage debt is not included in consumer credit. Consumer credit is in the range of $2.5 trillion and mortgage debt is in the range of $11 - $12 trillion.
Credit Defaults - Read Beyond the Headlines [View article]
R.B.F. - - -
It may be the time to sell with an eye to buy again below $3.50, but I am not taking action on this thought. If I had followed my gut on Citi trades for the past 18 months with a significant amount of money I would be much wealthier today. And the treasury would have additional tax revenue.
If I start following my gut now I may simply provide more proofs for Murphy's Law.
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
I hope someone will comment who has more detailed understanding than I do at this point.
But let me take a SWAG at it. If a bank has $1,000 of consumer credit debt on its books paying an average of 20% annual interest and 10% of that debt defaults, the balance sheet looks something like this:
$900 still current at 20% = $180
10% default loss = $100
Net gain = $80
Somebody in accounting will have to tell me how hard it is to hide the default loss and simply report a balance sheet gain of $80. That would be 8% return on the original $1,000 or 8.89% return on the adjusted book of $900.
This may be way too simple a view of what is happening but conceptually might be close to the actual facts.
Any readers able to give a better "accounting"?
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
I see the numbers you quoted in Table 2.6 of the BEA report. I would not interpret them the way you suggest.
In January 2009, the total of personal savings was $614.9. In August 2010 it was $661.9 billion. The difference is $57.7 billion for the 20 months.
However, I suggest you look across the intervening months. You can see that total personal savings is very noisy data. This is because it is calculated by taking the difference between two very large numbers (line 22 - line 23). Small changes in the large numbers can give large changes in the differences.
That is why I chose to use the change in disposable income which, although it bounces around, is much more stable than the accumulated savings calculated as it is.
One other factor that relates to your comment: Reducing credit outstanding has the same effect on net worth as the same amount saved. Thus defaulted debt has the perverse effect of reflecting increased savings.
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
Mortgage debt is not included in consumer credit. Consumer credit is in the range of $2.5 trillion and mortgage debt is in the range of $11 - $12 trillion.
Credit Defaults - Read Beyond the Headlines [View article]
It may be the time to sell with an eye to buy again below $3.50, but I am not taking action on this thought. If I had followed my gut on Citi trades for the past 18 months with a significant amount of money I would be much wealthier today. And the treasury would have additional tax revenue.
If I start following my gut now I may simply provide more proofs for Murphy's Law.