$10 Trillion Down the Tubes

MKM Partners economist Mike Darda is the best, but his recent emails make me want to take a hot bath and open up a vein:

 " 1) Flow of Funds data for Q3 was startling. It showed that household net worth (in 2008 dollars) has declined by more than $10 trillion from the cyclical peak, easily surpassing the 2001 and 1974 declines in percentage and real dollar terms.

2) The data also showed that household borrowing has declined on a year-to-year basis for the first time on record. Intense stress on household balance sheets has crippled retail sales.

3) November data showed that nominal retail sales have collapsed 7.4% year-to-year, the largest decline in post-WWII history. In real terms, retail sales have fallen at the fastest annual pace since 1980.

4) Despite the pullback in borrowing and spending, household debt levels are still high relative to after-tax incomes. With the labor market collapsing (see charts below), household assets down sharply, and financial conditions tight, we expect to see at least three more quarters of negative consumer spending before the economy begins to climb out of the current ditch sometime in late 2009 or early 2010. As we’ve said before, it’s likely to be a long, slow, sloppy and bumpy bottoming-and-recovery process."