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Another BoomBustBlog reader Op-Ed piece...

Table of Contents

Conclusions

These are the main conclusions:

Taken together, this supports the notion that the world as a whole has heavily indebted itself greatly over the past 20 years. It appears the world has doubled its collective debt to spend and speculate on housing, which is about to lose $25-50T on them.

Required Reading:

  1. Debt - Thoughts On A Global Problem (Part 1),
  2. Banking out of Control (Part 2)
  3. Part (3) Global Debt Stats from the BoomBustBlog Community
  4. Reggie Middleton on the Irish Macro Outlook
  5.   The Big Bank Bust
  6. Continued Deterioration in Global Lending, Government Intervention in Free Markets
  7. The Butterfly is released!
  8. Global Recession - an economic reality
  9. The Banking Backdrop for 2009
  10. Reader's Op Ed

Recommended Reading - The Asset Securitization Crisis: 

  1.   Intro: The great housing bull run - creation of asset bubble, Declining lending standards, lax underwriting activities increased the bubble - A comparison with the same during the S&L crisis
  2.   Securitization - dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble - declining home prices and rising foreclosure
  3.   Counterparty risk analyses - counter-party failure will open up another Pandora's box (must read for anyone who is not a CDS specialist)
  4.   The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue 
  5.    Municipal bond market and the securitization crisis - part I
  6.    Municipal bond market and the securitization crisis - part 2 (should be read by whoever is not a muni expert - this newsbyte may be worth reading as well)
  7.    An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital, PNC addendum Posts One and Two
  8.    Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux
  9.   More on the banking backdrop, we've never had so many loans!
  10.   As I see it, these 32 banks and thrifts are in deep doo-doo!
  11.   A little more on HELOCs, 2nd lien loans and rose colored glasses
  12.   Will Countywide cause the next shoe to drop?
  13.   Capital, Leverage and Loss in the Banking System
  14.   Doo-Doo bank drill down, part 1 - Wells Fargo
  15.   Doo-Doo Bank 32 drill down: Part 2 - Popular
  16.    Doo-Doo Bank 32 drill down: Part 3 - SunTrust Bank
  17.   The Anatomy of a Sick Bank!
  18.   Doo Doo Bank 32 Drill Down 1.5: Wells Fargo Bank
  19.   GE: The Uber Bank???
  20.   Sun Trust Forensic Analysis
  21.   Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street
  22.   Goldman Sachs Forensic Analysis
  23.   American Express: When the best of the best start with the shenanigans, what does that mean for the rest..
  24.   Part one of three of my opinion of HSBC and the macro factors affecting it
  25.   The Big Bank Bust
  26. Continued Deterioration in Global Lending, Government Intervention in Free Markets
  27. The Butterfly is released!
  28. Global Recession - an economic reality
  29. The Banking Backdrop for 2009
  30. Reggie Middleton on the Irish Macro Outlook




General - How much debt did we pile on?

The next question is, just how much debt did these other countries lump on top of their property bubbles, and how much change did we see in the past 30 years?

Well, we have some data on that. Clear data is available on Australia and the US. There was also a most prescient piece put out by the OECD (again!) in December 2006, titled "Has the Rise in Debt Made Households More Vulnerable?" (source).



Household Debt, % of Disposable Income - OECD Nations, 1985-2005

Consider these graphs of [Household Debt as % of Disposable Income ], and the % change in that figure, from 1995 to 2005 (source):

Observations:

The graph below pulls us 10 years further back, comparing Household Debt / GDP for all OECD nations in 1985, 1995 and 2005 (source):

Observations:



Private Domestic Debt - All Countries - Current

Below is the graph of Domestic Private Debt. This is different from household debt. It is defined by the CIA World Factbook (source) in the following way:

"the total quantity of credit, denominated in the domestic currency, provided by banks to nonbanking institutions. The national currency units have been converted to US dollars at the closing exchange rate on the date of the information."

What this can do for us is "plug in the gaps" to see where the major non-OECD members stand.

Observations:

What this says to me is that most of the world is quite heavily indebted. The only ones who aren't are the non-Asian, non-OECD countries. And Germany.


Savings Rate Change, 1960-2006 - OECD Nations

Below is a graph of the change in the savings rate for the major OECD countries, as well as a graph of the savings rate for many of these countries from 1960-2006 (where available) (source, source, source, source):

Observations:



Honing in on Australia - 1985 was the starting point

It was shown above that Australia goofed up big time. They borrowed a ton, they stopped saving, and they had a huge housing bubble. Australia has been shown many times to have had a Private Debt bubble. The graph below shows that mortgage debt as a % of GDP went from ~16% in 1985 to ~85% in 2008 (source):

We really began shooting to the moon in 1985. Again, 1985 seems like the global starting point for the debt and spending craze.


Honing in on the USA - 1985 was again when we *really* went out of control

This is how much debt we lumped onto our housing bubble (source):

Once again we see 1985 as a starting point. Debt was growing - hard - beforehand, but it was in 1985 when we saw homeowners' equity take a concerted leg downwards. And that was off inflated pricing. If we were to adjust pricing to reality, home equity would be even less.