Our Pending "Spending Review"

Posted by: Tom Keene on October 24, 2010

Halfway to Ronald Reagan

This is a remarkable chart. We have a debt burden. Now compare it to our disposable income. It is a true guesstimate with statistical baggage. Summary: We’ve de-burdened (It’s like deplane) back to 1999, but our miles are from a more frugal time. We are halfway back to Ronald Reagan.


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DSPBTOTL INDEX GP Q: The U.S. Household Debt Service Ratio (payments to disposable personal income) with 16-quarter (presidential) moving average.

O! Say Can You See

Where are we after the last decade? Can we see forward if we look back? The white line is top-line, current, nominal per capita disposable income. The red line is inflation or disinflation-adjusted. It is real per capita disposable income. The view back to 1980 is informative, but so was your Journey record collection. What about now?


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PIDSDPC INDEX & PIDSDPCW INDEX normalized at end-1999: Nominal is up 47% in a decade+; real is up 17%. Note the ill-wind since 2008.

Fortress Parker Hannifin Corp.

Non-financial corporations create jobs. They do that when they invest. Mr. Dimon gets the Press with Fortress Dimon, Fortress JPMorgan, Fortress Manhattan? No one is really talking about Fortress John Deere or the 54,794 employees at Fortress Parker Hannifin Corp.


ecochat102410nonfin.bmp

WNFFNWOS INDEX GP Q ROLL (semi-log): This is the growth of nonfarm nonfinancial corporate business net worth. It’s back to 2005 (the green circle). Nominal housing is back to the vicinity of 1997, maybe 2002 under some metrics. Parker Hannifin’s free cash flow T12 has migrated from about $160 million to $1,090 million in 10 or so years. The 10-year total return: 11.6% per year.

The Gift That Keeps On Giving

Japan has enjoyed a gift. Low interest rates that have allowed the nation to “manage” a mounting debt. The U.S. has enjoyed much the same gift in recent times. Perhaps, the giving is over.

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EOUSG012 INDEX GP Q ROLL: This is the calculation and modest forecast of the OECD on the U.S. interest payment as a percent of GDP. It was good, and then ugly (~3.5%) and now it will…elevate. Of course the difference from the 1970s is there is a bit more debt and way lower interest rates. In the spirit of the United Kingdom, a debate is in order. Here is a Nobeled Pissarides of LSE on their and possibly our pending “Spending Review.”

Discuss.


Reader Comments

Dallas

October 26, 2010 2:21 PM

Most interesting charts - real income hasn't declined in the last three years, but it's stagnated. Meantime, the cost of crucial middle-class goods (health care, education) continues to rise sharply, and asset prices have dropped (houses, stocks).

The peak years of the housing bubble saw a huge misallocation of capital away from productive uses, toward housing. Wealth and jobs come from productive investment. So our wealth and jobs growth has stopped.

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EconoChat captures Tom Keene's thoughts on economics, finance and investment. He is editor-at-large for Bloomberg News and hosts Bloomberg Surveillance and Bloomberg on the Economy on NYC1130, Sirius 129 and XM 130 and Surveillance Midday on Bloomberg Television. His complete interviews are at Tom Keene on Demand. Look for Tom on twitter @tomkeene

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