The data, from IMF, does not include China or India.

The chart shows data for net debt (gross debt reduced by certain assets: gold, currency deposits, debt securities etc.).

Viewing our post on the data in 2014 we can see that the USA improved on the expectations, managing to hold net debt to 80% instead of increasing to 88% as expected. Nearly every country managed to take on less debt than predicted (Vietnam took on more, but is very low so this is not a problem).

Taking on debt to invest in valuable resources (building roads, mass transit, internet infrastructure, education, environmental regulation and enforcement, health care, renewable energy…) that will boost long term economic performance can be very useful. The tricky part is knowing the debt levels doesn’t tell you whether the debt was taken on for investment or just to let current taxpayers send the bills for their consumption to their grandchildren.

Also government debt can become a huge burden on the economy (especially if the debt is owed outside the country). The general consensus today seems to be that 100% net debt level is the maximum safe amount and increasing beyond that gets riskier and riskier.

And it isn’t at all that this is a universal truth. Economically weaker countries have greater risks. And to me, if they go above 75% that starts to get very risky. The USA and Japan have extra latitude that others would be wise to realize. Taking on the same level of debt would be very troublesome for most countries. Japan has a huge percentage of their debt held internally which makes a huge difference (it is much safer).

Taking on government debt (at acceptable interest rates) and investing in economically productive projects is wise. There is a huge risk of taking on the debt given that reasonable business case but then spending in foolishly which creates big economic problems in the long run. If the investment don’t pay off the grandchildren of those taking out the debt will be stuck paying it back. But if the investments are wise the grandchildren will inherit a strong economy and benefit from the wise use of debt that was invested well.

I don’t think it takes much imagination to worry about all the ways taking on debt could result in bad long term results. I do believe in the value of wise government spending. I also do worry about politicians just rewarding those that pay give cash to them (their “campaign funds,” show a history of paying former politicians as lobbyists etc. when they leave…) instead of fulfilling their obligation to the country.

Related: Government Debt as Percent of GDP 1998-2010 for OECD – Gross Government Debt as Percentage of GDP 1990-2009: USA, Japan, Germany, China

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 3 basis points to 1.35% of all accounts – a record low. This also marked the third year that delinquency rates were below the 15-year average of 2.21%. The ABA report defines a delinquency as a late payment that is 30 days or more overdue. This is good news but the personal financial health of consumers in the USA is still in need of significantly improvements to their balance sheets. Debt levels are still too high. Savings levels are still far to low.

Home equity loan delinquencies fell 4 basis points to 2.70% of all accounts, which helped drive the composite ratio down. Other home related delinquencies increased slightly, with home equity line delinquencies rising 6 basis points to 1.21% of all accounts and property improvement loan delinquencies rising 2 basis points to 0.91% of all accounts. Home equity loan delinquencies dipped further below their 15-year average of 2.85%, while home equity line delinquencies remained just above their 15-year average of 1.15 percent.

Bank card delinquencies edged up 1 basis point to 2.48% of all accounts in the second quarter. They remain significantly below their 15-year average of 3.70 percent.

The second quarter 2016 composite ratio is made up of the following eight closed-end loans. All figures are seasonally adjusted based upon the number of accounts.

Closed-end loans
Home equity loan delinquencies fell from 2.74% to 2.70%.
Mobile home delinquencies fell from 3.41% to 3.17%.
Personal loan delinquencies fell from 1.44% to 1.43%.
Direct auto loan delinquencies rose from 0.81% to 0.82%.
Indirect auto loan delinquencies rose from 1.45% to 1.56%.
Marine loan delinquencies rose from 1.03% to 1.23%.
Property improvement loan delinquencies rose from 0.89% to 0.91%.
RV loan delinquencies rose from 0.92% to 0.96%.

Open-end loans
Bank card delinquencies rose from 2.47% to 2.48%.
Home equity lines of credit delinquencies rose from 1.15% to 1.21%.
Non-card revolving loan delinquencies rose from 1.57% to 1.65%.

Related: Debt Collection Increasing Given Large Personal Debt Levels (2014) – Consumer and Real Estate Loan Delinquency Rates from 2001 to 2011 in the USA – Good News: Credit Card Delinquencies at 17 Year Low (2011) – Real Estate and Consumer Loan Delinquency Rates 1998-2009 – The USA Economy Needs to Reduce Personal and Government Debt (2009)

Glossary
Indirect auto loan: loan arranged through a third party such as an auto dealer.
Direct auto loan: loan arranged directly through a bank.
Delinquency: late payment that is 30 days or more overdue.
Bank card: a credit card provided by a bank.
Closed-end loan: a loan for a fixed amount of money with a fixed repayment period and regularly scheduled payments.
Open-end loan: a loan with a fixed amount of available credit but a balance that fluctuates depending on usage such as a line of credit.
Non-card revolving loan: an unsecured, open-end loan that is not linked to a credit card. Examples may include lines of credit for overdraft protection or check credit.

See full press release

U.S. Health-Care System Ranks as One of the Least-Efficient

None of these rankings are perfect and neither is this one. But it is clear beyond any doubt that the USA healthcare system is extremely costly for no better health results than other rich countries (and even more expensive with again no better results than most poor countries). It is a huge drain on the economy that we continue to allow lobbyists and special interests to take advantage of the rest of us via the Democrats and Republican parties actions over the last few decades.

We have to improve. The costs imposed on everyone to support those benefiting from this decades old transfer of economic wealth to health care special interests should no longer be accepted.

The top 5 countries are: Hong Kong, Singapore, Spain, South Korea and Japan. The first four have costs about 25% of the USA. Japan costs about 40% of the USA per person cost.

Mylan’s despicable actions with Epi-pen and the direct participation of both political parties in increasing the costs foisted on the health care system by Mylan is just one in hundreds of the individual actions that continue to saddle the rest of USA economy with huge costs.

Related: Out of Pocket “Maximum”, Understanding USA Health Care Costs – Decades Later The USA Health Care System is Still a Deadly Disease for Our Economy – 2015 Health Care Price Report, Costs in the USA and Elsewhere – USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP – USA Spends $7,960 Compared to Around $3,800 for Other Rich Countries on Health Care with No Better Health Results (2009 data)

The damage to the USA economy due to inflated health care costs is huge. A significant portion of the excessive costs are due to policies the government enacts (which only make sense if you believe the cash given to politicians by those seeking to retain the excessive costs structure in the USA the last few decades buy the votes of the political parties and the individual politicians).

In 2015, Humira (a drug from Abbvie to treat rheumatoid arthritis that is either the highest grossing drug in the world, or close to it) costs $2,669 on average in the USA; $822 in Switzerland; $1,362 in the United Kingdom. This is the cost of a 28 day supply.

All the prices shown here are for the prices reported are the average allowed costs, which include both member cost sharing and health plan payment. So it only includes costs for those covered by health plans (it doesn’t include even much larger price tags given those without insurance in the USA).

Harvoni (a drug from Gilead to treat hepatitis C is also near the top of drugs with the largest revenue worldwide). This is also a drug that has been used as a lightning rod for the whole area of overpriced drugs. One interesting thing is this is actually one that is not nearly as inflated in the USA over other countries nearly as much as most are. Again, for a 28 day supply the costs are $16,861 in Switzerland; $22,554 in the United Kingdom and $32,114 in the USA. Obviously quite a lot but “only” double the cost in the USA instead of over triple for Humira (from Switzerland to the USA).

Tecfidera is prescribed to treat relapsing multiple sclerosis. The cost for a 30 day supply vary from $663 in the United Kingdom to $5,089 in the USA ($1,855 Switzerland).

There are actually some drugs that are more expensive outside the USA (though it is rare). OxyContin is prescribed to treat severe ongoing pain and is also abused a great deal. The prices vary from $95 in Switzerland to $590 in the United Kingdom ($265 in United States).

The report also includes the cost of medical procedures. For both the drugs and the procedures they include not only average but measures to show how variable the pricing is. As you would expect (if you pay attention to the massive pricing variation in the USA system) the variation in the cost of medical procedures is wide. For an appendectomy in the USA the 25th percentile of cost was $9,322 and for the 95th was $33,250; the average USA cost was $15,930. The average cost in Switzerland was $6,040 and in the United Kingdom was $8,009.

As has been obvious for decades the USA needs to stop allowing those benefiting from the massively large excessive health care costs in the USA from buying the Democrats and Republicans support to keep prices so high. But there has been very little good movement on this front in decades.

Related: USA Heath Care System Needs Reform – USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP – Decades Later The USA Health Care System is Still a Deadly Disease for Our Economy – USA Spends $7,960 per person Compared to Around $3,800 for Other Rich Countries on Health Care with No Better Health Results (2009) – Drug Prices in the USA (2005)

Chart by Curious Cat Economics Blog using data from the Wind Energy Association, data for 2014 and 2015. Chart may be used with attribution as specified here.

After a slowing of additional capacity added in 2013, both 2014 and 2015 saw a bit of a rebound in additions to global wind energy capacity. In 2013 capacity increased only 13% while in both 2014 and 2015 it increased 17%. Still 17% is less than any year in the last 10, except 2013.

At the end of 2013 China had 29% of global capacity (after being responsible for adding 62% of all the capacity added in 2013). In 2005 China had 2% of global wind energy capacity.

At the end of 2015 China accounted for 34% of global capacity, the only country in the top 8 increasing their share of global capacity. The USA now has 17% of capacity. Germany has 10%.

Europe moved first in adding large scale wind energy capacity but has added capacity very slowly in the last 5 years. Germany had 31% of global capacity in 2005. Spain had 17% in 2005 and now has just 5% (during that time Spain has more than doubled their wind energy capacity).

The 6 countries shown on the chart account for 76% of total wind energy capacity globally. From 2005 to 2015 those 8 countries have accounted for between 74 and 77% of total capacity – which is amazingly consistent.

Wind power now accounts for approximately 4 to 5% of total electricity used.

Related: Chart of Global Wind Energy Capacity by Country 2005 to 2013 – Solar Energy Capacity by Country (2005 to 2013) – Nuclear Power Generation by Country from 1985-2010 – Chart of Largest Petroleum Consuming Countries from 1980 to 2010

In 1965 foreign ownership of USA stocks totaled about 2%, in 1990 it had risen to 10% and by 2015 to 26%. That the foreign ownership is so high surprised me. Holdings in retirement accounts (defined benefit accounts, IRAs etc.) was under 10% in 1965, rose to over 30% in 1990 and to about 40% in 2015. The holdings in retirement accounts doesn’t really surprise me.

The combination of these factors (and a few others) has decreased the holding of USA stocks that are taxable in the USA from 84% in 1965 to 24% in 2015. From the report

As with much economic data it isn’t an easy matter to determine what values to use in order to get figures such as “foreign ownership.” Still this is very interesting data, and as the report suggests further research in this area would be useful.

Related: There is No Such Thing as “True Unemployment Rate” – The 20 Most Valuable Companies in the World – February 2016 (top 10 all based in the USA) – Why China’s Economic Data is Questionable – Data provides an imperfect proxy for reality (we often forget the proxy nature of data)

Credit scores range from 300 to 850. They are calculated by various credit reporting organizations, including FICO. They factor in payment history, percent of outstanding credit available that is used, credit report checks, length of outstanding credit accounts, etc..

Metlife report on consumers and credit scores provides some interesting data.

* Default rate in this case means, 90 days past due. MetLife got this data from the Consumer Financial Health Study dataset**.

Peer to peer lending platform, Lending Club, limits loans to those with a minimum credit score of 660 (remember there are multiple organizations that provide credit scores, this minimum is based on Lending Club’s score). In general I see scores above 700 in A and B loans, scores from 650-700 in C and D loans. Remember the credit score is not the only factor setting the rate (you will see scores above 700 in the C loans sometimes, etc.). Credit scores provide some insight but are just 1 factor in approving loans or setting rates (an important one but not a completely dominant one).

About 38% of people have credit scores from 750-850. Another 37% from 600-749 and about 25% from 350-599.

via online Vantage Score presentation

Vantage Score decided to make their score range go up to 1000, not the standard 850. Maybe a 750 score for them is comparable to 680? They say super-prime is 900+ (750-850 on more common scale), prime is 701-900 (680-739), near-prime 641-700 (620-679), subprime 501-640 (550-619). Anyway that chart shows the changing default rates from 2003 to 2010 by type of loan.

This Federal Reserve report on meeting between Federal Reserve Board staff and Fair Isaac Corporation (FICO) 20 June 2013 has some interesting material.

For guidance, the following table generally matches a borrower’s odds-of-default with the corresponding FICO 8 score (calculated on performance from Oct 2008 – Oct 2010). Of course, the range of scores and odds-of-default [the data is related to mortgages] will vary with each model as creditors develop and validate their own credit scoring models.

Odds-of Default		FICO 8 Score		percent of population**
5:1		610		9%
10:1		645		9%
20:1		685		6%
30:1		705		6%
40:1		720		6%
50:1		735		9%
100:1		770		30%

As you can see at a 610 level, 20 loans out of 100 defaulted. At 685 just 5 in 100 defaulted and at 770 just 1 in 100 did.

** I had to adjust this, because the report didn’t report it in this form, so it a very approximate measure (I made estimates for something like scores from 735 to 769 etc.). Again this is data from the Oct 2008 – Oct 2010 period. The rest of the population (about 25%) would have scores below 610.

Related: The Impact of Credit Scores and Jumbo Size on Mortgage Rates (2009) – Your FICO credit score explained – $2,540,000,000,000 in USA Consumer Debt

This page references a Fed report (that I can’t find) that found the following default rates on new loans for the two years after origination, 2000-2002:

***

The Consumer Financial Health Study respondents were asked to self-assess their credit quality and for permission to pull their actual credit scores.8 Forty-five percent of survey participants granted permission, yielding an “opt-in” sample size of 3,215. We appended two objective measures of creditworthiness to the dataset: Experian provided VantageScore 3.0 credit scores, and LexisNexis® Risk Solutions provided RiskView™ scores. VantageScore is a generic credit scoring model that was created by the three major credit bureaus (Equifax®, Experian and TransUnion®) and, in addition to
tradeline data, includes rent, utility and cell phone payment data when it is available in consumer credit files.

With each loan you may lend as little as $25. Lending Club (and Prosper) deal with all the underwriting, collecting payments etc.. Lending Club takes 1% of payments as a fee charged to the lenders (they also take fees from the borrowers).

Borrowers can make prepayments without penalty. Lending Club waives the 1% fee on prepayments made in the first year. This may seem a minor point, and it is really, but a bit less minor than I would have guessed. I have had 2% of loans prepaid with only an average of 3 months holding time so far – much higher than I would have guessed.

On each loan you receive the payments (less a 1% fee to Lending Club) as they are made each month. Those payments include principle and interest.

This chart shows the historical performance by grade for all issued loans that were issued 18 months or more before the last day of the most recently completed quarter. Adjusted Net Annualized Return (“Adjusted NAR”) is a cumulative, annualized measure of the return on all of the money invested in loans over the life of those loans, with an adjustment for estimated future losses. From LendingClub web site Nov 2015, see their site for updated data.

Lending Club provides you a calculated interest rate based on your actual portfolio. This is nice but it is a bit overstated in that they calculate the rate based only on invested funds. So funds that are not allocated to a loan (while they earn no interest) are not factored in to your return (though they actually reduce your return). And even once funds are allocated the actual loan can take quite some time to be issued. Some are issued within a day but also I have had many take weeks to issue (and some will fail to issue after weeks of sitting idle). I wouldn’t be surprised if Lending Club doesn’t start considering funds invested until the loan is issued (which again would inflate your reported return compared to a real return), but I am not sure how Lending Club factors it in.

Return shown for my portfolio. My portfolio is currently 3% A, 25% B, 44% C, 19% D and 9% E loans. The terms of my loans are 81% 36 months and 19% 60 months.

They also don’t credit the money to you until what seems like about 5 days after the payment has been received. This also reduces your achieved rate of return, from the nominal rate charged to the borrower. I would like to assume they factor this into their calculated returns, but given the other decisions they make when calculating the return I am not certain they do.

In any case the real return is still very good compared to my other options and so if they inflate the results by 40 basis points (I don’t know what the actual discrepancy is and the uncertainty looking forward is much larger than that anyway). The expected rate is likely around 5-8% compared to about 0-.25% for me, so the slight exaggeration doesn’t matter to me.

For my portfolio (shown in the graphic above) Lending Club shows a current return of 12% with an expected return through the completion of the outstanding loans of 5.7% to 8.5%. The current return is very inflated when your portfolio is very new as you have experienced no, or very few, defaults. I will explore historical returns, returns as the portfolio ages and the expected returns in a future posts. My portfolio is currently 3% A, 25% B, 44% C, 19% D and 9% E loans. The terms of my loans are 81% 36 months and 19% 60 months.

You can read details on the loans (and filter loans on those details) for things such as: loan type, state of borrower, debt to income ratio, months since a delinquency, months since a default, monthly income, credit score, own/mortgage/rent. Lending club scores the loan quality and determines the loan interest rate depending on that (and 36 month versus 60 month term).

The more risk taken by borrowers the higher the expected returns. So if you take riskier loans you get a higher interest rate on the loan and historically even after losses from defaults the returns are greater. This brings up my biggest concern with these loans: underwriting risk. As long as Lending Club does a good job evaluating underwriting risk and properly assigning interest rates commensurate with that risk this should work very well as an investment.

As long as you have a well diversified portfolio of personal loans there is a long track record of the risk. And while plenty of risky personal loans will default, and more will default if the economy has a downturn the interest rates on the loans provides good income even after such losses. And even if things go poorly the actually losses of capital should be small (over the whole portfolio).

The discussion of investing in peer to peer loans using LendingClub will be continued in next post (next week, updated to add link to the post: Peer to Peer Portfolio Returns and The Decline in Returns as Loans Age).

Related: Looking for Yields in Stocks and Real Estate (2012) – Taking a Look at Some Dividend Aristocrat Stocks – Looking for Dividend Stocks in the Current Extremely Low Interest Rate Environment (2011) – Where to Invest for Yield Today (2010)

As my recent post noted, adding 50,000 jobs a month is the new 150,000 in the USA due to demographic changes. That means job gains in the last year have added about 180,000 jobs per month above the 50,000 needed to accommodate growth due to demographic changes (a larger population of adults.

The change in total nonfarm payroll employment for August was revised from +136,000 to +153,000, and the change for September was revised from +142,000 to +137,000. With these revisions, employment gains in August and September combined were 12,000 more than previously reported.

Household Survey Data

Both the unemployment rate (5.0%) and the number of unemployed persons (7.9 million) were essentially unchanged in October. Over the past 12 months, the unemployment rate dropped by 70 basis (from 5.7%) and 1.1 million fewer people are listed as unemployed.

Among the major worker groups, the unemployment rates for adult men (4.7%), adult women (4.5%), teenagers (15.9%), whites (4.4%), blacks (9.2%), Asians (3.5%), and Hispanics (6.3%) showed little or no change in October.

The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 2.1 million in October and has shown little change since June. These individuals accounted for 26.8% of the unemployed in October.

The civilian labor force participation rate was unchanged at 62.4% in October, following a decline of 0.2 percentage point in September. The civilian labor force participation rate has remained stubbornly low as jobs have been added to the economy quickly over the last few years. This has resulted in the unemployment rate falling more quickly than if (as usually happens) the better job prospects bring people back into the labor force (and back into looking for work – even those than gave up for awhile while the job market was bad).

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) edged down by 269,000 to 5.8 million in October. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. Over the past 12 months, the number of persons employed part time for economic reasons has declined by 1.2 million.

Establishment Survey Data

Total nonfarm payroll employment increased by 271,000 in October.

Employment in professional and business services increased by 78,000 in October, compared with an average gain of 52,000 per month over the prior 12 months. Health care added 45,000 jobs in October. Within the industry, employment growth continued in ambulatory health care services (+27,000) and in hospitals (+18,000). Over the past year, health care has added 495,000 jobs.

Employment in retail trade rose by 44,000 in October, compared with an average monthly gain of 25,000 over the prior 12 months. Food services and drinking places added 42,000 jobs in October. Over the year,
the industry has added 368,000 jobs. Construction employment increased by 31,000 in October, following little employment change in recent months. Over the past 12 months, construction has added 233,000 jobs.

Employment in mining continued to trend down in October (-5,000). The industry has shed 109,000 jobs since reaching a recent employment peak in December 2014.

Employment in other major industries, including manufacturing, wholesale trade, transportation and warehousing, information, financial activities, and government, showed little or no change over the month.

The average workweek for all employees on private nonfarm payrolls remained at 34.5 hours in October. The manufacturing workweek edged up by 0.1 hour to 40.7 hours, and factory overtime edged up by 0.1 hour to 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 33.7 hours.

In October, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $25.20, following little change in September (+1 cent). Hourly earnings have risen by 2.5 percent over the year. Average hourly earnings of private-sector production and nonsupervisory employees increased by 9 cents to $21.18 in October.

Related: USA Adds Another 255,000 Jobs. Unemployment Rate To 7.9% (October 2012) – USA Economy Adds 151,000 Jobs in October and Revisions Add 110,000 More (2010) – USA Unemployment Rate Reached 10.2% (October 2009) – Over 500,000 Jobs Disappeared in November 2008

Interesting chart based on Federal Reserve data (via the Wall Street Journal)

While the costs of higher education in the USA have become crazy the evidence still suggests education is highly correlated to income. Numerous studies still show that the investment in education pays a high return. Of course, simple correlation isn’t sufficient to make that judgement but in other studies they have attempted to use more accurate measures of the value of education to life long earnings.

Related: The Time to Payback the Investment in a College Education in the USA Today is Nearly as Low as Ever, Surprisingly – Looking at the Value of Different College Degrees – Engineering Graduates Earned a Return on Their Investment In Education of 21%

The blog post with the chart, Why Wealth Inequality Is Way More Complicated Than Just Rich and Poor has other very interesting data. Go read the full post.

Average isn’t a very good measure for economic wealth data, is is skewed horribly by the extremely wealthy, median isn’t a perfect measure but it is much better. The post includes a chart of average wealth by age which is interesting though I think the $ amounts are largely worthless (due to average being so pointless). The interesting point is there is a pretty straight line climb to a maximum at 62 and then a decline that is about as rapid as the climb in wealth.

That decline is slow for a bit, dropping, but slowly until about 70 when it drops fairly quickly. It isn’t an amazing result but still interesting. It would be nice to see this with median levels and then averaged over a 20 year period. The chart they show tells the results for some point in time (it isn’t indicated) but doesn’t give you an idea if this is a consistent result over time or something special about the measurement at the time.

They also do have a chart showing absolute wealth data as median and average to show how distorted an average is. For example, median wealth for whites 55-64 and above 65 is about $280,000 and the average for both is about $1,000,000.

Related: Highest Paying Fields at Mid Career in USA: Engineering, Science and Math – Wealthiest 1% Continue Dramatic Gains Compared to Everyone Else – Correlation is Not Causation: “Fat is Catching” Theory Exposed