tag:blogger.com,1999:blog-1110014885778996459.post1234846461506457859..comments2024-03-28T11:48:09.419-07:00Comments on Idiosyncratic Whisk: 2013 4Q Household DebtKevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-1110014885778996459.post-56746770712652264502014-02-25T05:09:23.601-07:002014-02-25T05:09:23.601-07:00Well, no I didn't misunderstand your position....Well, no I didn't misunderstand your position. An inability ("unhealthiness") or unwillingness to lend on the part of the banking sector is certainly one possible explanation for the household debt level reduction trends in your top data-set. It isn't, however, the only possible explanation, and I consider it the very least plausible explanation.<br /><br />But I do agree with you that household debt level leveling/expanding will contribute mightily to making NGDP look pretty again.Shayne Cookhttp://www.mercuryinfotech.comnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-13367493212769866142014-02-24T09:03:44.327-07:002014-02-24T09:03:44.327-07:00So, if you don't mind following up, did you or...So, if you don't mind following up, did you originally misunderstand my position, or do you still believe that my position is in error?Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-16273817430048477572014-02-24T08:36:23.046-07:002014-02-24T08:36:23.046-07:00Cool. That answers my question and solves my origi...Cool. That answers my question and solves my original puzzlement.Shayne Cookhttp://www.mercuryinfotech.comnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-13045238347744835332014-02-24T08:03:07.521-07:002014-02-24T08:03:07.521-07:00I believe that has been a limiting factor in suppr...I believe that has been a limiting factor in suppressed bank lending. Liquidity clearly is not a constraint for banks right now.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-33721784761696082012014-02-24T05:26:34.200-07:002014-02-24T05:26:34.200-07:00Getting back to my original comment, it seems you ...Getting back to my original comment, it seems you believe that U.S. banking system "health" (capital base amount and makeup??) has been the dominant or even sole limiting factor in the suppressed household debt levels/trends through Q2 2013. <br /><br />I know some folks believe that is the case. But I may have misinterpreted your "question" in the post. That's why your question puzzled me. Perhaps I should just ask - do you believe that?Shayne Cookhttp://www.mercuryinfotech.comnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-45846899231552057182014-02-24T03:56:17.965-07:002014-02-24T03:56:17.965-07:00The way you phrased your question leads me to answ...The way you phrased your question leads me to answer, "No, I'm not saying that".<br /><br />What I am saying is that an inherent part of bank risk management entails retaining some portion of bank-owned capital (equity, assets) in non-risk/low-risk, liquid form in order to always be able to service the bank's liabilities - both as a matter of prudence and as a matter of regulatory compliance.Shayne Cookhttp://www.mercuryinfotech.comnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-20176886430978866912014-02-23T16:50:11.525-07:002014-02-23T16:50:11.525-07:00So, you're saying that banks have to manage th...So, you're saying that banks have to manage their risk exposure when considering the size and quality of their assets compared to their capital base?Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-56680477516370851162014-02-23T06:41:20.385-07:002014-02-23T06:41:20.385-07:00I'm afraid I can't un-complicate banking i...I'm afraid I can't un-complicate banking in 4096 bytes. But I think I can provide a more accurate and usable overall perspective of what the financial system is and does within that space.<br /><br />"Banks" don't OWN the money they lend into the economy, they PROCURE the money to lend into the economy - from primarily non-bank Depositors/Creditors. "Banks" (the entire financial system, actually) only provide an agency function to the economy. Acting as agents directly for those primarily non-bank Depositors/Creditors, "Banks" make the Depositor's/Creditor's money available to borrowers. In short, it ain't the "Banks'" money. And "Banks" didn't get bailed out in 2008, the Depositors/Creditors got bailed out - via their agents, the "Banks".<br /><br />Your observations on "bank capital" are somewhat correct. But bank capital is only a very small fraction of the money even ostensibly available to lend to the economy. (And some think far too small a fraction.) As a matter of fact, the entire issue/debate/gnashing-of-teeth surrounding bank capital requirements that began in 2008 (earlier, actually) and continues today centers on how much bank capital (bank-owned money/assets) have to be kept liquid and unexposed to any risk, in order to have it available to make Depositors/Creditors "whole" - in all conceivable conditions of macroeconomic trends, asset re-pricings, borrower default trends/rates, runs, etc. - without having to resort to extraordinary Fed or Treasury intervention, as happened in 2008. The issue of bank capital requirements is one of how much need be kept unexposed to risk, as a "buffer" in worst case economic scenarios. And that is the only inherent risk associated with bank capital. Shayne Cookhttp://www.mercuryinfotech.comnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-86077330118936880622014-02-22T18:05:28.691-07:002014-02-22T18:05:28.691-07:00I'm not sure I follow you. Banks have capital...I'm not sure I follow you. Banks have capital, and they expose themselves to risk in some proportion to that capital. As the quality and quantity of their capital base grows, they have more capacity to facilitate more investment. Banking is complicated, so I am happy to see if there is an error there. Explain.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-8044478632847704872014-02-22T07:34:29.878-07:002014-02-22T07:34:29.878-07:00Wonderful post and data-set displayed here, Kevin....Wonderful post and data-set displayed here, Kevin. I've been reviewing similar FedGov private sector debt level trends (back to 1993) lately as well. Your displayed data-set doesn't go back that far, but has better detail breakdown as to types of household debt. (By the way, you might find it interesting to extend your data back, at least to 1993).<br /><br />Your final "question" puzzled me though ...<br /><br />"A question I have had for this year is whether banks are healthy enough to pick up the slack from the QE3 taper."<br /><br />That question seems to proceed from the very defective, but equally common, premise that "banks" actually OWN the money they make available for lending to the private (or even public) sector.Shayne Cookhttp://www.mercuryinfotech.comnoreply@blogger.com