web analytics


By Pete Moore On February 8th, 2012

This is ominous.

According to the WSJ: “the Federal Reserve said Americans ramped up their borrowing at the end of 2011.” Household borrowing rose at a seasonally adjusted 9.3% annual rate in December, following a 9.9% rise in November.  According to the WSJ, that’s the biggest two-month surge since late 2001, when auto makers rolled out zero-percent financing after the Sept. 11 terrorist attacks.

This is the tsunami of Bernanke printed notes now working its way into the consumer sector, having already manipulated the growing boom in the capital goods sector. Motivated by zero interest rates, borrowers are suckered into taking on more and more debt, but with consumers grabbing those notes too prices can only go one way. Soon it will be a very bad idea to be in debt.


  1. “Congratulations Ben – by exterminating US savers, you have managed to reflate the consumer credit bubble as for the 4th month in a row, nobody is deleveraging, even as the US government continues to add about $140 billion in debt each month. The most epic credit bubble collapse ever is coming fast, and this one will be at ZIRP, which means that even the smallest rise in interest rates will finally and mercifully end it all. Yet an even more epic surge in prices may precede it as banks slowly but surely are forced to push excess reserves into circulation. All $1.6 trillion of them… compared to the $1 trillion of currency in circulation.”

    Link here

  2. (ZIRP = zero interest rate policy)

    Peter –

    I keep on thinking of how this will end. The crystal ball’s murky and the timeline isn’t clear, but it’s going to be a very ugly thing.

  3. exterminating US savers

    How are savers exterminated?

    Savings account interest is very low but so is inflation generally.

    In the past, savings account interest was higher but so was the general rate of price inflation.

    I’ve not seen a good exhibit showing the spread between average savings interest and average consumer inflation over time. That’s what we’d need to look at to speak properly on this, and I’ve not seen it.

    Just speaking about how you used to get 5% interest and how you now get 0.75% interest doesn’t really tell us anything.

  4. Phantom

    Savers are getting jack-shit on their bank deposits and inflation is at least 3%, probably higher for many savers, depending on what they have to buy each week. By the way, it’s exactly the same here in the UK.

    So they have a choice – live with effectively negative interest rates of go for riskier investments peddled by Wall Street and its off-shoots.

  5. Yes, but what was the spread before?

    If you look at this, the average inflation in 2007 was 2.85%. I’m not sure what the average savings account interest was then.

    I think that savers are being hurt now, but ” exterminated ” – no. May have to think about this some more.


  6. Phantom

    The ZIRP policy started in 2008 after the melt-down. Scroll down to see the graph of the Fed funds rate here. It shows the exact point when savers started to get ripped off by the Fed.

    And as you will be aware, the Fed has recently announced that ZIRP will run until at least the end of 2014. This is totally unprecedented, not just ZIRP, but the future commitment to it.

  7. Peter –

    Bear in mind that ZIRP isn’t set by the press of a button, but by keeping the money supply very high. Yes, Bernanke said ZIRP will remain until the end of 2014 at least. In effect he’s saying incredible amounts of money will be printed up.

  8. I suspect that all of the GOP candidates (except Ron Paul) are “intensely relaxed” about this, but well worth reading from the always excellent Charles Hugh Smith:

    “Now let’s consider the U.S. tax code. The 70,000 pages of tax regulations are legal, and since they are in the public record then presumably they are open to all. America’s tax codes seem to fulfill both hypotheses. In other words, everyone should be able to find perfectly legal provisions in the tax code to match Mitt Romney’s tax rates: Romney paid a 13.9% tax rate on $21.7 million in 2010, paying about $3 million. His 2011 estimates show an income of $20.9 million and a tax rate of 15.4%.

    Since a self-employed person pays 15.3% Social Security tax on 92.35% of his/her income up to about $106,000, (and 15% income tax on the first $34,500, 25% on everything up to about $83,600, and so on up to 35% on everything over $379,150), then it seems Mitt Romney is in effect paying .1% Federal income tax in 2011, since the self-employed person has to pay 15.3% right off the bat, even before income taxes are levied.

    According to our hypotheses, the tax code is equally open to all. Does the average citizen have the time and expertise to plow through 70,000 pages of tax codes? Clearly, the answer is no, so it’s simply not true that the tax code is equally available to all.

    Let’s imagine a different set of values and governance. Let’s suppose the tax law stated that the entire tax code must meet two requirements: it must be able to be read and understood by the overwhelming majority of citizens with a high school education in one hour or less.

    The national labs (or equivalent impartial bodies) would be tasked with conducting a randomized sampling of 100,000 citizens to test each year’s tax code. If 80% of the adult citizenry with a high school education (or GED) were unable to put the tax code into practice after an hour of study, then the code would be rejected and sent back to Congress for revision until it passed this simple, transparent standard for equality before the law.

    Clearly, the tax code is both legal and completely skewed to the very wealthy and politically powerful. $100,000 is still a fairly significant contribution in politics, and if that contribution ends up yielding a tax break that gains the donor $1 million in lower taxes, then that donation earned a 10-fold “return on investment.”

    Only the wealthy can afford to hire Panzer divisions of tax attorneys to pore over the 70,00 pages and game the system to pay less than self-employed citizens pay in Social Security and Medicare tax, never mind income tax.”

  9. The US government declares unemployment to 8.3% and declining, whereas real unemployment is 23% and rising. Given the government’s ability to lie through statistics, anybody who believes 3% US inflation deserves to join the 23%.