Economic Meltdown Roots Exposed in Charts & the Controversial 2005 Bankruptcy Law Changes Still Lingering:

Economic Meltdown Roots Exposed in Charts & the Controversial 2005 Bankruptcy Law Changes Still Lingering:
By Marc Chamot

“I have done two blog postings about the controversial 2005 bankruptcy laws changes, and it seems to come up every time as the root of the true EVIL INTO what’s happening with borrowing, new homes sales and our current state of the economy.”

Hearst’s San Francisco Chronicle, even though I have been a harsh critic of their newspaper operations in the past, they do have some finer points about their newspapers.

Please don’t let them know my secret, but I do read their newspapers on a daily basis. It either confirms my views and opinions or it will fire them up with disgust and anger.

But there’s one person that often does editorial projects for their newspapers, and he’s really awesome.

His name is Michael Lehmann. He’s a San Francisco economist and professor of economy at University of San Francisco, his blog http://beyourowneconomist.blogspot.com/

In today’s San Francisco Chronicle he put together a great statistical chart on our current state of the economy. And it’s both, truly amazing and very shocking. His “Bird’s Eye View of the Recession” is simply amazing and it will truly amaze you, in how far this country has fallen off economically.

His chart also shows a steady pattern in economic big four patterns, unseen in the United States and the world in our lifetime ever before.

The roots of our economical evils:

What’s interesting about Michael Lehmann’s chart, consumer confidence had a very steady growth and then began to drop right before former President Bill Clinton’s presidential term ended.

As soon as President George Bush came into office it grew just a bit then it had a steady slide since late 2001. We’ve got to bear in mind that the terrorist attacks in September 2001 caused some of the massive economic tailspin for the country. But later on, it did have a slower growth until mid 2007, when it fell off the cliff entirely.

The other amazing piece of information that Michael Lehmann shares with us is borrowing.

Around the beginning of 2008 we went from 2 Trillion dollars to the current -$93 Billion deficit. In his borrowing stat, I noticed that borrowing began to decline sharply, from its highest peak of $2.26 Trillion right around the beginning of 2006, and not much after the controversial 2005 bankruptcy law changes that were enacted by the U.S. congress.

As borrowing began to decline so did new home sales.

"I have done two blog postings about the controversial 2005 bankruptcy laws changes, and it seems to come up every time as the root of the true EVIL INTO what’s happening with borrowing, new homes sales and our current state of the economy."

My most popular story that got around all over the Net, which was written on Wednesday, April 30, 2008 was America in Turmoil No Way Out; the 2005 Bankruptcies Overhaul Bill is Killing Americans & the Economy; Americans unload prized belongings:

“The 2005 bankruptcy laws have put a shackle in debt obligations on Americans where these debts will linger with them for as long as the debts last or until they are paid in full. It means to most debtors who owe money, no more lines of credit and no more moneys available to buy fine things and pump back into the economy.

People and professionals had warned the Republican Congress back around when this new bankruptcy laws were being proposed even before President George Bush signed it into law, that it was a bad idea, and it would cause undue damage to Americans in the future and they were absolutely right!

People are being foreclosed in large numbers, credit card bills going unpaid. But regardless for as long that they are in the United States and carry a valid social security card number these debts will linger behind them for life. No matter where they work or how much they earn, they will run risks into garnishments of future wages to pay off these debts, mainly in homes and credit card companies that they no longer own or live in and credit cards that they don’t have.

The 2005 bankruptcy laws is another prime example on how politicians favored banks and big corporate interests over the populace, it’s another prime example on how Americans got the shaft again once again by these sorry politicians in office. And you also got to remember that the Republicans had the majority of the house and senate in the U.S. congress when they pushed for these laws to be passed.”

And the other article was, Massive U.S. Home Foreclosures Tied to 2005 Bankruptcy Law Changes, Scathing Government Report Says:

“And now with a new scathing government report just out, the main culprit that’s causing these mass foreclosures nationwide, is that very damaging 2005 bankruptcy law changes that benefited credit card lenders, and royally screwed the homeowners/borrowers, and real estate lenders.”

But as always, Washington politicians are still ignoring and refusing to amend the 2005 bankruptcy laws shortcomings. There were a few words from President Barack Obama in reversing the controversial law, but unfortunately it has gone nowhere.

In analyzing the chart further, we also see that since 2001 government borrowing was normal for decades, only with minor up and down shifts, but after 2001 under President Bush, it escalated from around -$200 Billion to $700 Billion in just three years. And then it had a smaller decline for years after that. Since the middle of 2008 last year, we went from 300 Billion to $2.15 Trillion in government borrowing.

And now Michael Lehmann story, Numbers expose financial meltdown's roots

It's easy to blame the economic crisis on the greed and skulduggery of bankers, brokers and assorted sharpies. Gaining true perspective requires grappling with data. The sharpies and their shenanigans comprise the economy's superstructure. Only statistics can expose the foundation.
But you don't need to look at all the numbers. Just four charts provide a bird's-eye view of the recession and our struggle to emerge from it. The first three charts capture the private sector's collapse; the fourth illustrates the public sector's response to that collapse.

New U.S. home sales chart reveals ground zero: the roots of the real-estate debacle. The Federal Reserve began inflating the bubble when it rescued the economy from the 2001 dot-com recession. You can see that real estate was already strong in 2001 when the Fed blessed it with easy money. As the Fed depressed interest rates and held them down, real estate exploded. Sales of new homes hit record levels by mid-decade.

Speculation carried housing prices and the size of the housing stock beyond any reasonable relationship to the rental value of the homes. Supply grew until it became a glut and toppled under its own weight.

Now a great asset deflation is upon us, and time must elapse for the market to absorb the glut. Not many want to build or buy a new home while foreclosures mount and the prices of existing homes topple.

Household and business borrowing chart broadens our perspective: By 2006, household and business borrowing had doubled its dot-com peak. We borrowed to the max in order to spend to the max, hoping that soaring real estate and stock market portfolios would cover our bets. When those portfolios collapsed we curtailed our borrowing and private spending, propelling the economy into recession.

Now we're repaying our debts, not originating new ones. That's why private deficit borrowing is negative for the first time since World War II. No borrowing, no spending. That relationship forms the core of the recession.

Consumer confidence chart gets personal: How do we feel about all this? See for yourself. Consumer confidence is at a post-World War II ebb. When people feel good, they borrow and spend. When they feel lousy, they repay and cut back.

How do we emerge from this morass? Who's going to borrow and spend? The private sector is tapped out. Only the public sector can seize the initiative.

Final chart shows federal borrowing sends in the cavalry: The federal government is running massive deficits (putting far more into the spending stream than it removes via taxes), borrowing record amounts and thereby playing the activist role the private sector once played. Only now it's roads and schools and clean energy instead of homes and automobiles.

To repeat: The private sector went boom and bust, so the public sector filled the breach. Sales of new homes, private borrowing and consumer confidence probably have bottomed out and won't get worse. When they rebound decisively, you'll know the economy is truly on the mend. That's when the public sector can relax, federal spending can subside and federal deficits and borrowing can shrink.

We'll stay tuned.