Just What Are We Buying, Anyway?

So, everybody knows are Americans are incorrigible consumers, who recklessly tap their houses for more and more cash and run up catastrophic credit card bills in order to buy plasma TVs. Right? Well, maybe not.

The first chart, from Calculated Risk, shows personal consumption expenditure (PCE) ex-health and health care spending as a percentage of GDP. Non-health expenditures have basically been constant between 56% and 59% of GDP since 1960, and has changed very little in the last decade.

The second chart shows health care spending, personal saving, and their sum since 1946. That sum has also been relatively constant since 1970. So, we weren't really using our home ATMs to pay for plasma screen TVs, we were using them to pay for hip replacements and chemotherapy.

Does it matter? I think that depends what the question is...

Disintermediation at Its Finest

From today's FT, bond issuance is skyrocketing while syndicated bank loans are still plummetting. This is "disintermediation" - banks won't lend because they don't have the equity and are delevering, while consumers are trying to save. The solution is the bond market. Yesterday's Treasury data showed that long-term US risk assets, at least, are being purchased by Americans. Foreigners are purchasing Treasuries. Here's the FT:

Corporate bond issuance has risen to $1,103bn so far this year, beating the annual record of $898bn in 2007, according to Dealogic, the data provider. The jump in issuance has been seen in dollar, euro, yen and sterling-denominated deals.

Volumes in dollar, euro and sterling have risen to record annual highs, only eight months into the year, while volumes in yen are close to record levels. Dollar issuance has risen to $487bn, euro issuance to $299bn, yen issuance to $64bn and sterling issuance to $53bn.

In contrast, volumes of syndicated bank loans this year are 52 per cent down on 2008 and 69 per cent down on 2007, as banks are more reluctant to lend
as they repair their balance sheets.

So far this year, syndicated bank lending has risen to $1,052bn compared with $2,182bn over the same period in 2008 and $3,369bn over the same period in
2007.

So in total, we lost $2.2 trillion in syndicated bank loans and gained $8-900 billion in bond issuance (annualized). If this is cause to break out the champagne, better stick to the Andre.