Trends that Won't End

U.S. taxpayers have lost $133 billion from TARP — the abominable acronym inflicted on us by former Treasury Secretary Hank Paulson — a new report out this morning shows.

We begin another week pulled in two directions: In one direction lie unresolved failures in policy… and the mayhem it has wrought in the financial system. In the other lie breakthroughs in energy and biotechnology.

There’s no real point in wagering on which of these trends will ultimately “win out.” It’s entirely possible the system can fly apart even as scientists and entrepreneurs stick to their knitting and achieve great new things.

The stress we alluded to last week is borne of the fear that the former — i.e., Hellish Financial Crisis Is on Its Way — will prevent the benefits of the latter from ever seeing the light of day.

If that happens, well… then… in the immortal words of the Mogambo Guru: “We’re all freakin’ doomed!”

Until such an event, however, we’re left to our own devices. We’ll continue to do what we do each day. We’ll follow the breadcrumbs. Let’s get started and see where they lead today…

“TARP is not over,” Christy Romero, acting inspector general of the Troubled Asset Relief Program, reminds folks of the program through which she derives her own power, prestige and paycheck (PPP).

Congress authorized $700 billion. $413.4 billion was paid out. Only $318 billion’s been paid back, according to a new report from Ms. Romero.

So much for the shrill lecture delivered last fall by CNN’s Erin Burnett to an Occupy Wall Street protester: “Taxpayers actually made money on the Wall Street bailout.” But what would you expect from someone engaged to an executive at Citigroup?

Getting the rest back will be no easy task: For starters, General Motors stock would have to more than double from $24.28 to $53.98.

Another trend that’s “not over,” we note, is bank shutdowns. The FDIC swooped in and closed four banks Friday night. (Yes, it’s the return of our own watch list for failed banks and the feds’ attempts to save them…)

Two of Friday’s victims are in Tennessee, where the last bank failure took place in 2002. The others are in Florida and Minnesota.

That makes seven banks for the month of January — an annual pace of 84. Close to last year’s total of 92, but lagging 2010’s peak of 157. (Who knows, maybe things will pick up in the spring!)

There is one notable increase: the FDIC’s “loss ratio.”

Of the 92 bank failures last year, FDIC losses totaled 20% of the failed banks’ assets. So far this year, it’s 32.9%… nearing TARP territory.

The deleveraging of the U.S. consumer is “not over” either.

The monthly “income-and-spend” figures from the Commerce Department reveal consumer spending was ruler-flat between November and December. Consumers, indeed, got their shopping done early.

Personal income, on the other hand, grew 0.5%. Gee, what a bunch of tightwads Americans have become.

“The capacity for households to carry on to be the engine of growth that they have been in past recoveries is simply not there,” says economist Carmen Reinhart of the Peterson Institute.

She points to figures showing that in the third quarter of last year, household debt totaled 86% of GDP. That compares with 47% as Americans climbed out of the “double dip” recessions in the early ’80s.

By the way, that same Commerce Department report features the “core personal consumption expenditures,” the Fed’s favorite measure of inflation.

Last week, you may recall, the 2% “inflation target” ceased being an “unspoken agreement” and became “official policy.” According to the numbers, the year-over-year increase in December was 1.8%. So in the estimation of the monetary mandarins, there’s still not enough inflation in the system.

Addison Wiggin
for The Daily Reckoning