Chuck Madere: America’s Total Debt Report cont.
Chuck Madere Here with a continued report by Michael Hodges
The author is most concerned with this financial sector debt picture, although I do not fully understand its full makeup and ramifications (see comments below).
But to place this sector in perspective - - Left is a chart showing the main master chart of this chapter for total debt (red line) vs. national income (blue line), that also adds a yellow line to denote the portion of total debt that excludes domestic financial sector debt. The area between the red and yellow lines represents domestic financial sector debt, per federal reserve data.
Although some domestic financial sector debt may also be included in other debt categories, such as repackaging of mortgages (via Fannie Mae), business receivables, etc., most also agree the business debt category understates its own debt, as evidenced by off-balance sheet debts of the likes of Enron, WorldCom, CitiCorp., etc.- - as areas of hidden debt still coming to light and much of that deeply involves the domestic financial sector and is not on business corporate books as it should be.
For example: Numerous areas of ‘hidden’ debt continually come to light - such the debt-freezing of markets in 2007. The Wall Street Journal reported on 7 Sept. 2007: "Though few investors realize it, banks such as Citigroup Inc. could find themselves burdened by affiliated investment vehicles that issue tens of billions of dollars in short-term debt known as commercial paper. The investment vehicles, known as ‘conduits’ and SIVs, are designed to operate separately from the banks and off their balance sheets. One Citigroup SIV is Centauri Corp., which had $21 billion in outstanding debt as of February 2007, according to a Citigroup research report. There is no mention of Centauri in its 2006 annual filing with the Securities and Exchange Commission." On 5 Sept. 2007 the Financial Times reported: “The dislocation in interbank lending stems not just from distrust of rivals’ balance sheets. Banks also have doubts about their own." Bloomberg reported: "Regulators are unable to quantify losses from collateralized debt obligations."
Additionally, the explosion of household debt category does not include increased ratio of auto leases, although such is a form of debt.
Up to and including 1998 the Federal Reserve included the ‘domestic financial sector debt’ in their totals - - since then, they dropped this from their totals. Why they included that sector before in their totals but then changed, is unknown to me, but I continue to keep data methodology for total debt and said trends consistent with the past practices - - less one distorts trends. Therefore, trends of financial sector debt must be included in determining Total Debt (red line on chart), using Federal Reserve data.
The author requests input from those with more knowledge of this sector regarding above comments.
by Michael Hodges - email
updated June 2008
- a chapter of the Grandfather Economic Reports
Thank you for reading,
Chuck Madere
Michael Hodges.
