Capital Commerce Debate, Part 4 Chart

The following charts are for part 4 of the great Ritholtz/Luskin debate.

Present Jobs Recovery: Worst in post WW2 era

Graphic courtesy of Spencer England’s SEER

Next up, consider the importance of Debt to the ongoing consumer lifestyle:


Source: Federal Reserve Flow of Funds Report

Mortgage Equity Withdrawals were important to Americans, as
they used more and more debt to finance their lifestyles.

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What's been said:

Discussions found on the web:
  1. shawn commented on Apr 12

    You got to be amazed at what Bush/Cheney and Greenspan/Bernanke plus the PPT is capable of doing — Financial Innovation!

    Sometimes I think we bear should sincerely learn from their Innovative ideas and their Preserverance to bring this country to the richness we are enjoying now. LOL.

  2. Estragon commented on Apr 12

    In another blog, the subject of what to call the current economic era. Stagflation lite kindasorta does it, but how about…

    Debtfication, as in “the guy next door got debtficated on last week. If we get debtficated on too, we’ll have to move in with your folks”

  3. freqreader commented on Apr 12

    If cash flow hick-ups, people will chock on their debt. There is no way around that. Who is going to hold the bag and why with this amount of risk, aren’t interest rates higher?

  4. super-anon commented on Apr 12

    Oh come on… pulling out the old consumer DTI chart is just hitting below the belt.

    I suspect it won’t be too long before you bears sink to new lows and start arguing that the negative savings rate was directly responsible for the recent surge in corporate earnings.

  5. zell commented on Apr 12

    This is a bottom up erosion of financial vitality, not a top down dot com, Enron, World Com financial blow up. Bottom up takes time.It’s underway, sadly, but the consumer knows no way but to shop till they drop. The reasons for the dropping are apparent well before the event takes place. Momentum. A rocket doesn’t stop short the moment the fuel is gone. Patience.

  6. cardinalpark commented on Apr 12

    Does the changing data control for the increased percentage of households which own homes (and therefore have taken on more and more debt) versus renting?

    Simply arguing that debt has gone up and that is necessarily bad or dangerous is erroneous and misleading. when I acquired my first home, my debt to income skyrocketed, yet my financial condition and solvency had never been better and only improved subsequently.

    Could it be that these statistics correlate to rising home ownership in the US, and that this is in fact a good thing economically?

  7. The Dirty Mac commented on Apr 12

    Technically, Jimmy Carter can be elected president in 2008 if we want a return to the good old days.

  8. luckydog commented on Apr 12

    Personally I think Carter is a good individual but was not a good president.
    I love how people pick on Carter for the debacle that was left over from the Vietnam war, closing the gold window, oil embargo, confidence erosion from Watergate and just the big Clusterphuck he inherited. Lets put history into context.

  9. Nova Law commented on Apr 12

    Barry, the arguments you make in this series are familiar to me, as you hit on themes which you regularly highlight here. I don’t read Luskin’s blog, which means I am seeing some of his arguments for the first time.

    One interesting point which he made, and which for space reasons I suspect you have not addressed, was his comparison of MEW with consumer spending. You forcefully argue that MEW drives consumer spending, and that without MEW going forward, consumer spending will plummet.

    Luskin offered an interesting chart showing that consumer spending over the past two decades has no connection to MEW. Could you discuss this disconnect, either here or perhaps in a post on the blog?

    Link to Luskin’s chart:

  10. wunsacon commented on Apr 12


    I’ll try to respond here…

    When MEW was 1-2% of PCE, variations of 50% in MEW could only move PCE by .5-1%. But, when MEW becomes 5-10% of PCE, a 50% change can affect PCE by 2.5-5%, which is significant.

  11. Eclectic commented on Apr 12


    If ifs and buts were candy and nuts, we’d all have a Merry Christmas.

  12. Lauriston commented on Apr 12

    Numbers, numbers, numbers. The arguments make sense, but believing in these numbers is like believing in P/E ratios. P is fine, in fact P is real but E is just made up. E can be anything you want, whether you are honest or not in arriving at E. E is POS. Most numbers are POS these days, everyone has a vested interest. Ask David Lereah…

  13. Eclectic commented on Apr 12

    Okay Barringo, I’ve read 4.

    I’m a dyed-in-the-wool objectivologist, and so I have to give the whole nod so far to Luskin.

    You’ve won a battle and lost the campaign, so far.

    We may have a video of a train running off the tracks at a washed-out tressel, but Luskin is in the cat-bird seat until we fast-forward to the event.

    He’s even said he expects to be bearish at some future time, relatively soon. I can’t come up with a good argument to defeat him.

    Right now… he’s right by default.

    Sorry… but I’m born of a love of truth, justice and the American Way.

  14. Kevin Rooney commented on Apr 13

    One thing that struck me about the consumer debt tables is that just eyeballing the numbers, the climb looks pretty steady. Carter Reagan Bush Clinton Bush II, no difference shows up in the table.

  15. Kevin Rooney commented on Apr 13

    I take that back. There was no decline anywhere in the household debt charts, but from 2000 onward there is some acceleration.

  16. Eclectic commented on Apr 13

    I’m sorry Barringo, but I’m even taking back your 1 battle point won.

    I went back and read all the debate again, plus the comments of “m3” following my comments regarding part 3 of the debate, and, well, m3 actually pushed me over to:

    Luskin 4, Barringo zip.

    I’ll admit you got started strong and seemed to carry two full points through debate 2… but then you sort of flamed out on part 3, getting lost in the haze of MEW.

    Come to think about it, that would be a good song title and theme:

    “I’m lost in a haze of MEW,
    Heart-broken and thinkin’ of you.”

    And yesterday’s market flip?… Purely a validation of what m3 told me, and what Bondie’s already told us, and that’s a reflection of both of their clear understandings that the trend is indeed your friend. But more importantly, Dr. Anke is the trendy friend they’re referring to, and he won’t let them down.

    Too, Luskin has assured us he’ll let us know just when to be bearish. I suppose all that adds up in this way:

    1 – Luskin will be our stalwart watchdog, and at the correctly selected moment, he plans to bail and move his residency over to Metro Big Pictureville.

    2 – Luskin says we’re playing freeze-tag with MEW, but he’s got his foot on a safety, and at least for now he’s right.

    3 – He says employment is too strong for the economy to buckle right now, and that it won’t unless and until the Fed throttles it… and dang if it doesn’t all make pretty good sense.

    4 – Finally, once we’ve tossed out MEW, and tossed out employment, and tossed out the Fed ever throttling anything (and tossed out P/Es that you haven’t tossed in yet), we ain’t got much bait left to de-bate with, huh?

    You’re gonna need a miracle to pull this thing out of the fire, if only back into the fryin’ pan, Friday. But the fryin’ pan is the best you can hope for, cause the whole thing hasn’t cooked long enough yet.

    I would make one suggestion going forward. Swear off using the word (or phrase) MEW. It’s actually like a Hail-Mary pass used in the last seconds of a lost-cause football game… and thus it can’t win unless it does win, and the odds are usually in doubt by almost everybody in the stadium.

  17. sn commented on Apr 13

    Eclectic, you gotta get yourself back on them meds, man.

    The Ritholtz/Luskin positions can be summed by way of analogy: Mr. Ritholtz argues that the gaping hole in the Titanic’s hull will cause the ship to sink, based on analyses of the size of the hole, construction of the ship and so on. Mr. Luskin in essence is saying that the hole does not represent a serious problem because so far all is quiet and serene and there is little evidence the ship is sinking. Not an argument that merits “the whole nod” as you suggest.

  18. Eclectic commented on Apr 13


    I like your analogy.

    I suppose it means I’ll have to nod for Luskin… until I have to lean for Ritholtz.

  19. MarkM commented on Apr 13


    Wow. The Sirens have seduced you. I concur with “sn”. Luskin’s whole argument is that “It hasn’t mattered.” That’s correct. It doesn’t until it does. And neither he nor Barry know when that will be, but unlike Barry, Luskin refuses to point out the underlying decay. Instead, he cheerleads.

    And the MEW chart Luskin lifted from Calculated Risk without attribution? Well, CR shows how that should really be handled.

  20. Incognitus commented on Apr 13

    “I suspect it won’t be too long before you bears sink to new lows and start arguing that the negative savings rate was directly responsible for the recent surge in corporate earnings.”

    Debt is taken to buy stuff and services, which are mainly provided by corporations.

    So yes, the negative savings rate, as well as the surge in debt, is INDEED responsible for the recent surge in corporate earnings (as well as for the surge in income inequality … remember, 96% of all equities are held by 10% of the population).

  21. anonobservertoo commented on Apr 13

    That employment growth chart for this cycle seems so lifeless. Its being forced along with no vigor, with debt being rung up slowly to employ the construction/mortgage finance sectors.

  22. Philippe commented on Apr 13

    The Pce core deflator 1993 2007 should be considered and ploted in the charts.
    This is where and when interest rates matter.

  23. Eclectic commented on Apr 13

    Seduced you say, MarkM?

    Nope… it’s just that when I scuba dive with the Sirens, I don’t have to worry about dodging a big ass Titantic divin’ for the mud, with her decks full of MEW… not yet anyway, and maybe not at all.

    And Luskin is gonna let us know when to start lookin’ so I feel rather secure.

    Number 8, the “Sirens” scene:

  24. daisycolorado commented on Apr 13

    The employment chart would look a lot different if you indexed off the low point in employment instead of the arbitary date set by NBER as to when the recession ended. Frankly, the 2001 recession did not end in November 2001. Employment continued to drop as did industrial production. The bottom for employment growth came in Aug 2003.

    In the 43 months since then non farm employment is up 6%, more growth than what we saw in the first 43 months following the 1990-1 recession, the 1980-82 recession and equal to what we saw following the 1973-4 recession. All you have shown is that NBER got the end of the last recession wrong.

  25. Barry Ritholtz commented on Apr 13

    Wait — you want to judge this recovery from the low point in employment — but all previous recoveries from that ” arbitary date set by NBER?”

    Talk about cherry picking the data!!!

    How about this: Do an IDENTICAL comparison between all recoveries — I did one starting from the same point, the end of the recession.

    Now you do one starting from the employment low point of all post WWII recessions.

  26. greg0658 commented on Apr 13

    Eclectic writes:
    nod for Luskin… until I have to lean for Ritholtz

    : – )

    thanks BR, BenB, Eclec, sn and all

    for holding the line on irrational exuberance, and getting the lifeboats untarped

  27. Nova Law commented on Apr 13

    Workers are so scarce in this economy that we’ve imported 12 million illegal aliens to do the work for lack of home-grown hires; unemployment is down to an almost frictional level as it is. I suspect the bears would not be happy until the unemployment rate would be at 0.0%, an economic impossibility.

    And please don’t tell me that all those jobs are low-paying ones – illegal aliens make up something like 2/3 of the construction jobs in many areas, earning them at least $15 an hour in cash.

    At the risk of repeating myself, I would really like to see Barry address the lack of historical connection between increases in consumer spending and MEW.


    BR: Stop giving me homework assignments, and learn to do research on your own, ya lazy git:

    There are 78 Big Picture posts with “MEW” in the title or body: Google Search bigpicture MEW

  28. daisycolorado commented on Apr 13

    If you look at both household and payroll data, and index from the low point in employment, you will find the post 2001 recession recovery to be very similar to the 1990-91 recovery but still more sluggish than the 73-74 recession or 80-82 recession.

    The weaker employment growth coming out of the past two recession reflects the lower rates of unemployment achieved in the prior recessions. Had we had more severe recessions in 1990-91 and 2001, we could have had stronger rebounds in employment. Fortunately the last two recessions were mild, and not surprising, the recovery in employment was mild as well.


    BR: Compare the number of people who have left the labor pool this cycle (many) versus prior cycles;

    Also, I saw a study some time ago (dont remember where) on Unemployment that looked at the huge increase in incarcerated adults in the US versus Europe over the past 30 years. Turns out we in the US lead the industrialized world on a % basis — and this paper suggested it partly explains the dfifference between US and UK/German/France unemployment rates.

  29. wunsacon commented on Apr 13


    >> At the risk of repeating myself, I would really like to see Barry address the lack of historical connection between increases in consumer spending and MEW.

    What am I, chopped liver?? ;-)

    The answer is that there has been no historical connection up until recently, because the contribution of MEW was ignorable up until the past 5 years. Your chart supports that view.

    BR *did* say as much in a previous post. (So, here, I’m claiming good parroting skills and not independent smarts.)

  30. Lord commented on Apr 13

    If you think this recovery was bad, just wait for the next one.

  31. anderl commented on Apr 13

    Sad state of affairs here. People still looking at the trees and not the forest. Still talking about boomers exiting the workforce and shortage of the work force weak recovery and everything.

    A full business cycle has come and gone while you guys are trying to cherry pick the last bottom you are going to… ahem are missing the current one.

    If you people are so focused on US employment growth or lack there of you are going to miss the fact that US population is still expanding unlike some areas of the world. That is the forest. People forget that there is a sizable population of US citizens under 18 that will be fully incorporated into the workforce by 2010 and will be LARGER in total size that the current boomer population by 2020-25.

    With a little inflation to boot the Social Security problem will resolve itself. The demand on the economy by a new batch of boomers is going to keep a steady uptrend in economic growth in the US as they earn income, purchase homes, and establish families.

    But that is the forest that people tend not pay attention to. After all most of you have been jaded on a massive economic boom and burned on an equally massive bust. So I can understand your fear and inability to see what is going on. Calibrate your senses people. Slow growth is still growth. If you are going to wait for momentum to go bullish or another 2001 to buy into you’ll moss most of the expansion.

  32. greg0658 commented on Apr 13

    Fact on prison population:

    According to US Dept of Justice Bureau of Statistics the number people incarcerated under state and federal jurisdictions per 100,000 of the total population grew from 139 in 1980 to 476 in 2002.

    I dont believe the State stats would include County jails.

    The report goes on to say a black male has a 1 in 3 chance of spending time in jail.

    IMO a felon has little chance of good employment in this data dependant economy.

    IMO border crossers have a better employment chance at hand, ie: no possessions to bog them down, a group dorm to move into and a relative with a foot in the door.

  33. touche commented on Apr 13

    Those charts really sum up our dilemma. Households have been adding about $1 trillion in debt per year since 2003. This debt has paid for housing construction and consumer goods. But the effect on the economy has been much larger than the $1 trillion because of a multiplier effect. The dollars borrowed and spent are in turn earned and spent over and over until they are spent on imports and then lent to us again and the cycle starts all over. If the US consumer can no longer service more debt, the effect on economy will greatly exceed the $1 trillion that we borrow each year. GDP will fall by much more than $1 trillion and then what happens to the debt to GDP ratio? Checkmate.

    At this point, the debate should focus on not whether we crash, but on what happens next. If we try to force the debtors to pay back the money that they owe, we have a grand depression. That leaves only one alternative folks…

  34. greg0658 commented on Apr 13

    Update on jail population:

    A County of 112,000 inhabitants close to home has an average daily pop of 200. Thats 150 pretrial and 50 steady eddies.

  35. John F. commented on Apr 15

    In the first chart comparing the ’90s and ’00s depends entirely on where you call the trough. Besides, the shape of the curve adds nothing to the important stats, namely employment and unemployment. It’s hard to argue we have an unemployment problem. As for employment, it’s debatable whether we’re measuring it properly and whether the size of the workforce has shrunk for demographic or other benign reasons. There seem to be an awful lot of people we’re not measuring these days, and thus probably not their jobs. These are interesting and important things to try to understand; your chart is about politics more than economics, and I’d leave its ilk to non-working economists like Paul Krugman.

  36. Barry Ritholtz commented on Apr 15

    Non-working economists?

    What’s that mean?

  37. John F. commented on Apr 16

    As opposed to “working economist,” which I understand to mean someone whose continued livelihood depends in some measure on the accuracy of their predictions. This definition includes Barry Ritholtz, Gary Shilling, Don Luskin, and Wall-streeters such as David Malpass. It excludes academics and talk show hosts (Kudlow rates emeritus status). Nouriel Roubini may occupy a gray area, I simply don’t know how his bread is buttered. There may be a better term than “non-working:” my assessment of Dr. Krugman’s work needs no further pejorative, and as a former academic, I use it at the risk of self-incrimination.

    Sans distracting embellishment, my point was simply that the chart showing employment by stage in recovery isn’t terribly interesting except as a political prop. There are enough hard questions to try to answer without ringing the partisan dinner bell.

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