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Debt categories:
All Debt: $3.607 trillion per year
Fed Borrowing per year (“Official”): $400 billion to $500 billion (Actual):$1 trillion., total (“Official”): $9 trillion. (Actual): $50 trillion.
Agency/GSE (Fannie/Freddie, etc.) MBS per year: $468 billion, total $4.076 trillion,
ABS (Other than Agency) per year: $673 billion, total $4.268 trillion.
Bank Assets total: $10.193 trillion. (Of which $3.5 trillion is residential real estate)
Total Mortgage Debt (TMD) per year: $954 billion, total: $10.426 trillion
Commercial Mortgage total: $2.261 trillion.
Corporate Bonds per year: $436 billion.
(Ras):Okay, so those are the raw numbers. Now, the “fun” part will be toextrapolate the current credit crunch out and see how it might impactBOTH the general credit-creation orgy, AND the general economy. Below,I will attempt to do just that. (Please note that these guesses arejust that: guesses. Who really knows how far and wide a credit crunchmight spread, the individual categories affected and the ultimateamount of collapse? Furthermore, let us never forget that thegovernment response will be severe, with all the stops pulled out tofight this bust. You already see this happening with Fannie/Freddiestating they will start to sop up bad MBS.)
Okay, on with thefun: The U.S. GDP is stated at roughly $12 trillion dollars annually(What is the REAL number after adjusting for inflation, doublecounting, etc?), this translates to our running up debt to the tune ofabout one-third of our entire output of goods and services—every year.Now, if we start applying credit crunch numbers to differentcategories, perhaps we can see how much this crunch might impact theoverall economy:
Let's start with everyone's favorite: Housing:
At this juncture, housing debt is broken down (oops, bad pun!!!) into several categories of bagholders. Those bagholders are:
Agency/GSE (Fannie/Freddie, etc.) MBS per year: $468 billion, total $4.5 trillion, plus:
ABS (Other than Agency) per year: approx. $500 billion a year of housing only, to about $2 trillion.
Banks: about $3 billion per yea,r$3.5 trillion total
…which totals about: $9.5 trillion sitting on the books in the form of MBS outstanding (NOT counting the myriad CDO/CDO-squared, cubed, diced, sliced!!!)
Now, what happens if real estate transactions fall off 30% nationwide, which I consider to be a completely plausible number?
Well, this translates into $300+ billion dollarsLESS MBS created, $300+ billion LESS revenue for the REIC, less feesfor Wall street, (plus all the peripheral businesses to real estate).
Loss of annual revenue to the economy: $1 trillion per year. Or more.
Furthermore,that $9.5 trillion or so of current MBS will probably be re-valuedDOWNWARD as perhaps as many as 20% of ALL homedebtors default, so addin a capital loss of approximately $2.4 trillion to the balancesheets of any and all MBS bagholders (including pension funds, mutualfunds, money market funds, foreign devil bagholders, and God knows whoelse!!)
Of course, Fannie and Freddie may step up and buy the“bad” MBS that are on the books of the suckers, thereby monetizing that$2.4 trillion, but can they REALLY entice the bankrupt homedebtingsheeple into signing off on a couple of trillion dollars a year in NEWmortgages?
Total potential impact to the economy: As muchas $3.5 trillion , PLUS the $1 trillion a year in lost revenue, PLUSthe complete, utter and vicious COLLAPSE of all the instruments derivedfrom the $9.5 trillion in MBS, such as CDOs, CDO-squared, cubed,sliced-and diced, the CDS, and myriad other derivatives. I simply amtoo stupid to calculate this collapse in terms of numbers, but I'll betit will be in the multiple trillions more.
Which brings us to our next point: Corporations.
Corporationshave been on their own frenzy of borrowing. Borrowing to buy othercompanies. Borrowing to buy back their own stock. Borrowing because,well, they CAN borrow, and cheaply too.
The annual corporate borrowings have been:
Corporate Bonds per year: $436 billion.
To finance the party that I described above.
Now, estimates are being thrown around that between $250 billion and $500 billion in leveraged buyout debt is right now sitting in the pipeline either at the banks, or in process to be lent.
Imaginewhat a contraction of, say, 25% would do the $1 trillion per yearmerger mania and the concomitant stock market bubble? Blowing a $250billion hole in the leverage-lunacy would certainly NOT be helpful, no?
Imagine the scale-backs, the contraction in business, the layoffs.
Total estimate impact: $1 trillion per year.
Atthis juncture, I have collapsed the $12 trillion dollar yearly economyby $2 trillion per year, PLUS the $3 to $4 trillion in lost MBS“value”, PLUS the collapse of the derivatives pyramid (which again, Icannot put an accurate number on, but believe me, it will be trillions.)
Notto mention that the “Fear Factor” would be pervasive, impacting allsectors of the “consumer economy”, so we could easily be facing anaddition contraction of $1 trillion based on that alone.
Finally,we have the government sector, which is getting harder and harder todiscern from the private sector with the growth and inter-connectednessof the Fed, the feds and of the GSEs. In any event, you can bet thatthe FED/Feds/GSEs WILL do any and everything to try to prop up theeconomy.
So, let's say they attempt to monetize “assets”; MBS,Corporate debt—you name it. Well, they will have to cough up somewherein the $5 trillion dollar range to make whole all the bagholders in thevarious categories.
And that “money” is gonna have to come from somewhere.
Do they borrow it?
Perhaps, but from whom? Our current debt enablers, the Communist Chinese, OPEC and Industrial-Imperialist-Mercantilist Japan?
Hmmmm, okay, maybe our enablers WILL give us more dope, but at what price? What interest rate? What terms?
Summary: To cut this already painfully long missive shorter, let's get right down to it:
WE'RE SCROOMED!!!
Onlynow, instead of just screaming “Scroomage” in general, I am attemptingto apply a methodology to it and come up with some actual,realistically plausible numbers. And those numbers are sobering. Evendownright scary.
Take heed, fellow Bears/Bearettes. We arefacing massive disruptions, changes to the credit, debt, and economiclandscape. These types of upheaval and chaos rarely result in smoothpolitics either. Who knows what Draconian measures will be attempted byTPTB? What reactions the Roving Hordes of Starving Masses will have?What our foreign competitors will do?
For my part, I'm on full-blown, batten-down-the-hatches, crash mode. And I will remain on this vigil until further notice…
All Debt: $3.607 trillion per year
Fed Borrowing per year (“Official”): $400 billion to $500 billion (Actual):$1 trillion., total (“Official”): $9 trillion. (Actual): $50 trillion.
Agency/GSE (Fannie/Freddie, etc.) MBS per year: $468 billion, total $4.076 trillion,
ABS (Other than Agency) per year: $673 billion, total $4.268 trillion.
Bank Assets total: $10.193 trillion. (Of which $3.5 trillion is residential real estate)
Total Mortgage Debt (TMD) per year: $954 billion, total: $10.426 trillion
Commercial Mortgage total: $2.261 trillion.
Corporate Bonds per year: $436 billion.
(Ras):Okay, so those are the raw numbers. Now, the “fun” part will be toextrapolate the current credit crunch out and see how it might impactBOTH the general credit-creation orgy, AND the general economy. Below,I will attempt to do just that. (Please note that these guesses arejust that: guesses. Who really knows how far and wide a credit crunchmight spread, the individual categories affected and the ultimateamount of collapse? Furthermore, let us never forget that thegovernment response will be severe, with all the stops pulled out tofight this bust. You already see this happening with Fannie/Freddiestating they will start to sop up bad MBS.)
Okay, on with thefun: The U.S. GDP is stated at roughly $12 trillion dollars annually(What is the REAL number after adjusting for inflation, doublecounting, etc?), this translates to our running up debt to the tune ofabout one-third of our entire output of goods and services—every year.Now, if we start applying credit crunch numbers to differentcategories, perhaps we can see how much this crunch might impact theoverall economy:
Let's start with everyone's favorite: Housing:
At this juncture, housing debt is broken down (oops, bad pun!!!) into several categories of bagholders. Those bagholders are:
Agency/GSE (Fannie/Freddie, etc.) MBS per year: $468 billion, total $4.5 trillion, plus:
ABS (Other than Agency) per year: approx. $500 billion a year of housing only, to about $2 trillion.
Banks: about $3 billion per yea,r$3.5 trillion total
…which totals about: $9.5 trillion sitting on the books in the form of MBS outstanding (NOT counting the myriad CDO/CDO-squared, cubed, diced, sliced!!!)
Now, what happens if real estate transactions fall off 30% nationwide, which I consider to be a completely plausible number?
Well, this translates into $300+ billion dollarsLESS MBS created, $300+ billion LESS revenue for the REIC, less feesfor Wall street, (plus all the peripheral businesses to real estate).
Loss of annual revenue to the economy: $1 trillion per year. Or more.
Furthermore,that $9.5 trillion or so of current MBS will probably be re-valuedDOWNWARD as perhaps as many as 20% of ALL homedebtors default, so addin a capital loss of approximately $2.4 trillion to the balancesheets of any and all MBS bagholders (including pension funds, mutualfunds, money market funds, foreign devil bagholders, and God knows whoelse!!)
Of course, Fannie and Freddie may step up and buy the“bad” MBS that are on the books of the suckers, thereby monetizing that$2.4 trillion, but can they REALLY entice the bankrupt homedebtingsheeple into signing off on a couple of trillion dollars a year in NEWmortgages?
Total potential impact to the economy: As muchas $3.5 trillion , PLUS the $1 trillion a year in lost revenue, PLUSthe complete, utter and vicious COLLAPSE of all the instruments derivedfrom the $9.5 trillion in MBS, such as CDOs, CDO-squared, cubed,sliced-and diced, the CDS, and myriad other derivatives. I simply amtoo stupid to calculate this collapse in terms of numbers, but I'll betit will be in the multiple trillions more.
Which brings us to our next point: Corporations.
Corporationshave been on their own frenzy of borrowing. Borrowing to buy othercompanies. Borrowing to buy back their own stock. Borrowing because,well, they CAN borrow, and cheaply too.
The annual corporate borrowings have been:
Corporate Bonds per year: $436 billion.
To finance the party that I described above.
Now, estimates are being thrown around that between $250 billion and $500 billion in leveraged buyout debt is right now sitting in the pipeline either at the banks, or in process to be lent.
Imaginewhat a contraction of, say, 25% would do the $1 trillion per yearmerger mania and the concomitant stock market bubble? Blowing a $250billion hole in the leverage-lunacy would certainly NOT be helpful, no?
Imagine the scale-backs, the contraction in business, the layoffs.
Total estimate impact: $1 trillion per year.
Atthis juncture, I have collapsed the $12 trillion dollar yearly economyby $2 trillion per year, PLUS the $3 to $4 trillion in lost MBS“value”, PLUS the collapse of the derivatives pyramid (which again, Icannot put an accurate number on, but believe me, it will be trillions.)
Notto mention that the “Fear Factor” would be pervasive, impacting allsectors of the “consumer economy”, so we could easily be facing anaddition contraction of $1 trillion based on that alone.
Finally,we have the government sector, which is getting harder and harder todiscern from the private sector with the growth and inter-connectednessof the Fed, the feds and of the GSEs. In any event, you can bet thatthe FED/Feds/GSEs WILL do any and everything to try to prop up theeconomy.
So, let's say they attempt to monetize “assets”; MBS,Corporate debt—you name it. Well, they will have to cough up somewherein the $5 trillion dollar range to make whole all the bagholders in thevarious categories.
And that “money” is gonna have to come from somewhere.
Do they borrow it?
Perhaps, but from whom? Our current debt enablers, the Communist Chinese, OPEC and Industrial-Imperialist-Mercantilist Japan?
Hmmmm, okay, maybe our enablers WILL give us more dope, but at what price? What interest rate? What terms?
Summary: To cut this already painfully long missive shorter, let's get right down to it:
WE'RE SCROOMED!!!
Onlynow, instead of just screaming “Scroomage” in general, I am attemptingto apply a methodology to it and come up with some actual,realistically plausible numbers. And those numbers are sobering. Evendownright scary.
Take heed, fellow Bears/Bearettes. We arefacing massive disruptions, changes to the credit, debt, and economiclandscape. These types of upheaval and chaos rarely result in smoothpolitics either. Who knows what Draconian measures will be attempted byTPTB? What reactions the Roving Hordes of Starving Masses will have?What our foreign competitors will do?
For my part, I'm on full-blown, batten-down-the-hatches, crash mode. And I will remain on this vigil until further notice…
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