Preview of my take on the state of things

With Christmas out of the way, time to get to the year end stuff.  My update will come out mid-Jan as usual, but I thought it would be helpful to explain why prior to.  One can sit there and point to the graphs and say the economy is going down (and I am happy that there are graphs to point to now), but at some point it has to stop going down, so how does one identify that point?  Has it already sailed past?

So, first question is where did this start?  I can give you about 10 different answers, and all would be right, and obviously you could counter with any one of the remaining 9 and also be right.  A brief reminder (and I am not saying it started here) but most started to see trouble with the stock market bubble starting in ~1997-2000, which then popped between 2001-2002 and the government stepped in and redirected the hysteria full force to the real estate market up until about 2007.  At that point the government stepped in again and again redirected the hysteria this time to the government itself (namely the national debt).  That is pretty much where we are today.

Three things I am looking at for a turn around (to tell me for sure there is) and one of them is a gauge of the gauge.  Real estate prices and personal debt, and the gauge is inflation.  And this is annual data, not month to month fluff.

So since 2007 here is the state of affairs in US house prices.  Maybe this is only a US problem?  No, Greece is now pretty much bankrupt (they are trying to hang on by slashing all government programs by 10%, including social security) but it is essentially over, Iceland already fell, and more seem to be on the way.  Seeing as I could not recall all of the countries I went looking, and well here is a list of the 20 most likely to default (the values are a percentage of GDP to account for various sizes)

Full article is here.  I am not going to harp on this, as anything based on GDP is suspect in my mind, and as the article points out it is surprising that England and Japan are not on the list.  The takeaway however is that the US is on the list, and namely for either the 87% of national debt (of total US GDP) or more alarmingly the 231% of personal debt (of total US GDP).  It will be telling to follow this in the upcoming year to see who falls next!

Anyway, I am off track now, let me re-focus.  As the real estate market continues to head down, money is being destroyed.  Much like what happens when a stock prices head down, the money in very simple terms just goes away (known as deflation).  I single the real estate market out for a couple of reasons, it is absolutely huge money wise in comparison to almost anything else, and also because it is pretty resiliant to government meddling.  Yes, I know, $8,500 seems like a substantial incentive the government is using to get the housing market going, but lets see how that holds up over the next 6 months.

And the other measure to watch is consumer credit, because if this is expanding, people are feeling good and taking risk, however, if it is contracting (or with inflation, it just has to be flat) people are not feeling confident and without that no recovery for the long term can be underway.  

The non-revolving is still holding steady, for the most part, but look for that to head south as foreclosures hit the prime market.  The revolving credit (credit cards, etc) hopefully will turn up first at the end of this.

As you can guess, both of these are slow measures, and even a year or two after a peak or trough you will start to see the trend, but these should ground you on the bigger picture.  Little month to month changes in whatever the stat is should be weighed against these.

And lastly, the gauge to keep in mind.  Inflation.  If I inflate the money at 10% and prices go up 2%, that is not a positive trend.  Immediately you ask why not just factor inflation in on the above charts, and I would, if someone could agree as to what the measure of inflation is.

Well, that is it.  Another reminder that at the end of Jan the typepad address will stop working, so change your RSS feed to http://economic-data.blogspot.com/