"The Numbers to Truly Watch" [CITS DEBT WATCH]

[W. Curtiss Priest]

** **

W. Curtiss Priest, Ph.D.
Center for Information, Technology & Society
466 Pleasant Street Melrose, MA 02176
E-mail: BMS...@MIT.EDU, Voice: 781-662-4044, FAX: 781-662-6882

December 4, 2001

Public Issue #82:

CITS DEBT WATCH

"The Numbers to Truly Watch"

Commentary by Dr. W. Curtiss Priest:

As the attached debt summary shows, taking on debt has become the
American "pastime," of unfortunate proportions.

What is truly unfortunate about it is that we who owe no one,
pay our bills and live the "savings ethic" will be punished
along with all the miscreants who have incurred the enormous
debt that will precipitate the economic crisis that will not
only take their jobs, but many of ours, as well.

And, just as we no longer imprison debtors, we will also have
no recourse against them, when the cards begin to fall.

Everyone with debt, who incurred yet tens of thousands of
dollars of more debt this October by purchasing hulking SUVs
"on credit" because of Greenspan's gift(?) to the economy
should be brought to the commons and put in stocks consisting
of their steering wheel opened to hold their heads for all
to see them for what they are -- people who live so beyond
their means that they threaten our entire nation's security.

***

And, where does this debt end up? It is quickly rolled over
into yet another house refinance, and "disappears."

This is the "magic act" before us.

For, as long as households can hide their precariousness behind
a false sense of wealth called real estate prices, almost
everyone reporter and economist will miss the true picture
of this economy.

Notice, for example George F. Will's tendency in this direction
in "Not all bad news on the economy (Boston Globe, 12/2/2001, A19):

Alan Abelson of Barron's reports that consumer installment
debt as a percentage of personal income is 21 percent, near
the record high and substantially higher than what is
normal (under 16 percent) at the bottom of recessions.
While that will limit the boost consumers can give to
the recovery, the values of most families' most valuable
assets, their homes, are still rising. That should help
consumers feel good.

In contrast to Will's myopic sense of this economy, the correct
numbers to watch is the delinquency rate on mortgages.

Today, Bloomberg announced (Boston Globe, 12/4/2001, p. C2,
"Mortgage woes"):

As layoffs spread across the country, homeowners falling into
foreclosure reached a record high and the percentage of Americans
behind on mortgages rose to the highest level in 10 years, according
to figures from the Mortgage Bankers Association. Lenders began
foreclosure proceedings against 0.38 percent of homeowners in the
third quarter, the highest level since the group began tracking the
figure in 1972. And the percentage of loans with payments overdue at
least 30 days rose to 4.87 percent in the period, approaching the
5.20
percent it reached in 1991 during the last recession, the group said.

In 1985, only 50% of household debt was held in mortgages. Then,
almost overnight this percentage has risen to 75% (see prior
articles on the Federal Reserves' "Survey of Household Finances").

This is a shell game. All shell games end badly.

Prior CITS DEBT WATCHs are available at:

http://groups.google.com/groups?q=%22CITS+DEBT+WATCH%22&hl=en&scoring=d

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(best viewed in fixed point Courier)

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$$ CITS DEBT WATCH INDICES $$
$$============================================================$$
$$ 3.410 trillion -- Federal Government Debt $$
$$ 1.759 trillion -- Federal Government Obligations(*) $$
$$ 7.933 trillion -- Federal Government Liabilities(*) $$
$$ 7.024 trillion -- Household Debt $$
$$ 6.356 trillion -- Business Debt $$
$$ 1.263 trillion -- State, local government, and other $$
$$ ----- $$
$$ 27.745 trillion -- TOTAL "Non-financial" U.S. Exposure $$
$$ 8.159 trillion -- Loans between Financial Institutions $$
$$ ----- $$
$$ 35.904 trillion -- TOTAL U.S. Exposure, Sept. 30, 2000 $$
$$ $$
$$============================================================$$
$$ Source: All numbers except (*) Federal Reserve Board $$
$$ Series Z.1 $$
$$ (*) "The U.S. National Debt," Hugh Catherwood, $$
$$ Journal of the Association of $$
$$ Government Accountants, June, 2000 $$
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$$ $$
$$ Summary as of June 30, 1999 $$
$$ $$
$$ Lowest U.S. Debt/GDP Ratio '20-'99 -- 1.4 $$
$$ 1929 U.S. Debt/GDP Ratio -- 1.8 $$
$$ Current U.S. Debt/GDP Ratio -- 1.8 $$
$$ Current U.S. Exposure/GDP Ratio -- 3.8 $$
$$ $$
$$ Index of Artificial Demand (1929) -- 6.1% $$
$$ Index of Artificial Demand (1998) -- 15.0% $$
$$ $$
$$ Debt/GDP Ratio based on: $$
$$ GDP 8.873 trillion (U.S DOC, June 30, 1999) $$
$$ U.S. Debt excluding U.S. Obligations, U.S. Liabilities $$
$$ and the Financial Sector 16.758 trillion $$
$$ $$
$$ Index of Artificial Demand based on: $$
$$ Percentage of (Consumer Debt+Government Deficit)/GDP $$
$$ Source: Batra (1999) and Econ. Rept. of the President $$
$$ $$
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$