The Good, the Bad and the Ugly of Consumer Debt....minus the Good

I talked a little bit about the American Consumer in my first blog post...so I thought I'd go into more detail about just how bad the average american is hurting right now...just got done reading the 40 page report titled "Household Debt and Credit" written by the Federal Reserve of New York and wanted to reiterate the STRUCTURAL shift we will continue to see...simply put, the consumer is SPENT!

The United States consumer has a whopping $11.7 Trillion worth of Total DEBT.  This Debt level in '99 was $4.6 Trillion...so it's roughly tripled in 10 years....okay great well that $11.7 Trillion sure sounds like a lot, but how much is it really???

Let's put this number in perspective because it is tough to really comprehend. The entire U.S. GDP or all the money our Economy generated in 2009 was $14 Trillion. Sinking in a little yet?  So theoretically, if you took almost all of everything we produced in a year you could pay this debt off.

Let's look at it another way. If you took the 4 largest banks in the United States...the banks who seemingly everybody gets their loans from....JP Morgan, Bank of America, Citigroup, & Wells Fargo....you add up EVERY single LOAN they have outstanding, it only equates to $3 Trillion or 25% of all debt outstanding. Now remember how the "credit crisis" wreaked havoc on our financial system...well sorry to say, but it really hasn't gone away.  If 25%, or just 1 out of 4 Americans decided to walk away from their Debt...it could theoretically wipe out all these institutions...yes I know if you walked away from your house these banks theoretically have an asset against their liability, but what if they can't sell that asset? Then they have to mark that asset down, which in-turn causes them to raise capital, and a vicious circle ensues.

Currently, new mortgages are being originated at 50% what they were from 2003-2007. So another words, if these banks get the houses put on them due to the delinquent loans....these Banks have 50% the market to try and sell the house back into....can you say S...O...L???

Okay, now the truly frightening part.  According to the Federal Reserve, 11.4% of ALL Debt is Delinquent. That equates to $1.3 Trillion...enough to wipe out Wells Fargo ($750 Billion in loans) and CITI ($650 billion in loans)...oh ya, I forget to mention the Seriously delinquent loans which are "defined" as over 90+ days late....that's another $1 Trillion which would wipe out B of A ($950 billion in loans).
 
The consumer simply ain't gonna lead us outta this slow-down....sorry, but the numbers don't lie!