Economic Statistic of the Decade Award: Winner

You have voted, and the winner of the  Economic Statistic of the Decade Award is…..

Household Borrowing!

(loud applause from the audience). Definitely a worthy winner.

Household borrowing received 6 votes.  Housing prices got 2 votes, as did Chinese economic growth.  Job growth got 2 write-in votes, and oil (prices and production) got 2 votes as well.  Oddly enough, there were no votes for international trade.

Should I have a plaque made?

Comments

  1. I concede — it’s the borrowing curve that takes the prize, not housing price escalation, but you have to admit that with home ownership pushing 70%, the ramp up in the value of houses surely was a direct contributor to the borrowing frenzy, whether it was upgrading, home equity loans, or just over-reaction to perceived personal net worth gains.

  2. Still having a tough time seeing anything other than Chinese growth here…Mostly because it seems that the policies that led to Chinese growth drove all the others… (I guess that I am a sore loser.) In all, those charts as a group are excellent in explaining the decade… If you included the tech bust, we’d have a full PowerPoint presentation…

    Wasn’t posting to whine, so I’ll stop…

    I’m curious to know which way you would have voted Michael, and maybe your rationale for it?

  3. Mike Reardon says:

    It not official but I lean towards this as the most telling chart for the decade.

    What wealth compression rate comes from these derivatives that no longer can realize there value? How much forward return from this wall of leverage will not be realized going forward? And how much will still return value for later investment?

  4. Excellent link, Mike Reardon.

  5. Mike Mandel says:

    I’ve spent a lot of time looking at the derivatives data, especially the exchange rates. My question is: If there is a dollar crisis, who has the real exposure?

  6. Derivatives: Not being a professional trader, I reserve the right to make observations that may turn out to be naive. The Pollyanna side of me says that greater use of derivatives simply means that more parties are hedging their positions and the result ought to be greater stability. As evidence, consider that we passed through a tremendously high market volume in December in connection with derivative expiration, yet there was little impact on pricing. It seems to me that it is only the portion that is not transparent that could be dangerously unbalanced.

    There is one other aspect of derivatives that does bother me, though. If you consider corn futures, at some level nobody should be buying them except the farmer who has a reasonable expectation of delivering the corn. The market originated with that function in mind, yet that hasn’t stopped speculators, and surprisingly grain speculation does not appear to have played an overly significant role in the financial destruction of farmers, even those who don’t hedge. Derivative instruments involving mortgages seem to be quite unnatural, though, because the only party who can’t use them to hedge his position is the individual home buyer, who typically doesn’t even realize that he and the banks and speculators have shifted toward treating his home as an investment without his having done anything to manage the risk. It seems to be just one more scheme to transfer more of the risk to the individual. Add to that the lack of transparency in mortgage instruments, and one wonders how any party other than those banks that originate them can possibly know how to hedge around them.

    I’m still forming an opinion about the possibility of self-fulfilling prophesy regarding bets on individual stock movements, where ganging up to destroy confidence seems like a real possibility, and the idea of a company hedging against that possibility by betting against itself would not sit well with most people, if it’s even legal. When the company is a bank, I gather that makes it an altogether different beast (like the Bear Stearns side of their story). I find the whole subject very interesting.

  7. Excellent chart Mike Reardon. I’m filing that one away for future use…

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