Consumer Deleveraging Continues

For those who say that the consumer has "de-levered" enough, and thus we will return to prosperity and borrowing, The Fed threw a big bucket of cold water on that:

Consumer credit decreased at an annual rate of 5-1/4 percent in the second quarter. Revolving credit decreased at an annual rate of 8-1/4 percent, and nonrevolving credit decreased at an annual rate of 3-1/2 percent. In June, consumer credit decreased at an annual rate of 5 percent.

Or if you prefer it in pictures, here it is:

Note that revolving credit is being defaulted and paid down (probably much of the former!) much faster than non-revolving. Here's the breakdown:

So much for the argument that "the Consumer is fine" and will "return to spending like a drunken sailor."

Uh, what will he spend when he is paying down debt while income, as reported by personal earnings, continues to contract or be flat?

Comments

[The Geoffster]

Here's a solution that the jokers in D.C. should love. Send the beloved middle class a $10,000.00 prepaid debit card drawn on the Treasury. The card is good everywhere credit cards are accepted. It can only be used for new purchases and expires in 90 days. We'll call it Cash for Flunkers.

2009 Aug 07 09:26 PM

[LilBob]

Call me naive, but so long as the decrease in credit outstanding is greater than the decrease in earnings due to short time amongst those who are still working, then the long-run effect of this trend on the economy is incredibly positive. Recessions-although unpleasant-do serve a purpose: they flush a good bit of the crap out of the economy; second-rate business plans, irrational exuberance and outright fraud. We're just going to have to learn to live in a world where consumers only spend money that they do have and where they avoid digging themselves into impossible holes of debt that they aren't able to climb out of. (I can't wait for the irate responses to that statement)

2009 Aug 08 01:21 AM

[drewriders]

I hate to break this to you but the consumer is deleveraging right now because of the job situation. Once employment inches up into positive teriitory and home buying increases. Americans will go back to their spending ways. We should see another 'real' recession in less than 5 years.

2009 Aug 08 07:19 AM

[Karl Denninger]

I hate to break it to you, but there's going to be some serious cold water thrown on that thesis in a few hours..... wait for my weekend "sitrep" post - it has some STARTLING information in it regarding credit and the likelihood that this mess will be over any time soon.


On Aug 08 07:19 AM drewriders wrote:

> I hate to break this to you but the consumer is deleveraging right
> now because of the job situation. Once employment inches up into
> positive teriitory and home buying increases. Americans will go back
> to their spending ways. We should see another 'real' recession in
> less than 5 years.

2009 Aug 08 10:59 AM

[H. T. Love]

I don't think so. Pain and fear tend to leave a much stronger imprint on the conciousness than the relative pleasure of safety, security and lack of nervousness. My belief is that the change is a long-term shift. Ultimately good for the country, and the individuals.

HardToLove


On Aug 08 07:19 AM drewriders wrote:

> I hate to break this to you but the consumer is deleveraging right
> now because of the job situation. Once employment inches up into
> positive teriitory and home buying increases. Americans will go
> back to their spending ways. We should see another 'real' recession
> in less than 5 years.

2009 Aug 08 03:24 PM

[merv.]

I, think only the kool-aid drinkers would dare to spend on anything except the things they need with this OCOMMIE government .

2009 Aug 08 07:22 PM

[TeresaE]

The entire economy was based on liar loans and 3% credit cards.

Both now gone entirely.

Unless those two things come back, there is no base left on which to base a recovery.

This is a great plan to remove money from the middle and gift it to the top, while throwing the bottom a couple extra food stamps to party with.

Lock 'em in at 3%, extend even more, offer zero percent on TVs and facelifts, then once the person is barely keeping afloat, change the rules, double the payments and increase interest tenfold.

That is what happened, and the victims are being accused of being the bad guys.

Just found you today Karl and I like it! Can't wait to read your future columns

2009 Aug 11 02:38 PM