Consumer Credit: Dreadful 30 comments
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Consumer credit decreased at an annual rate of 6 percent in the third quarter of 2009. Revolving credit decreased at an annual rate of 10 percent, and nonrevolving credit decreased at an annual rate of 3-3/4 percent. In September, consumer credit decreased at an annual rate of 7-1/4 percent.
Yuck.
Here's the graphical representation.
Nothing good in here. The non-revolving flattened out some in September (gee, you think "cash for clunkers" might have influenced August and September?) but revolving credit - that is, credit cards - continues its base jump without any appreciable change in slope.
Here's the longer-term view:
We are a credit-based system, as are all modern monetary systems. No meaningful economic recovery can or will occur until the consumer has purged his balance sheet of the inappropriate debt he has and is once again able to earn and borrow.
If we supposedly exited the recession on or before September, it sure isn't apparent in this report. You can put a fork in that line of garbage - it's done.
PS: The next update of the Z1, due out in a couple of months, should be interesting..... especially the "Ponzi Finance" indicator....
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This article has 30 comments:
Another great comparative analogy between "credit" and "recovery". Seems to me there's some serious divergence between the two. The key here is "credit" data is absolute, while the "recovery" data is "Wall Street Math" based. Hmmm, no wonder there's such a divergence.
Would someone provide a chart on NEW GOODS PRODUCED USING EXISTING CAPITAL VS NEW GOODS SOLD FOR WHICH PRE-EXISTING (not freshly printed) DOLLARS WERE PAID.
Yes Karl, employment is the holy grail here as opposed to PONZI BUCKS.
Good work
It's not Wall Street and Main Street.
It's Wall Street and EVERYONE ELSE.
Now the Wall Street crowd is pretending the everyone else crowd doesn't even exist. It's simply too messy to do otherwise.
Nothing stands in the way of the glorius V, huh?
Anyway, anyone who thinks that a strong recovery is on its way read them and week. Recovery so far is only in the public sector, overseas, and due to commodity inflation thanks to a watered down dollar. All of these things don't inspire domestic confidence, are unsustainable or have nothing to do with domestic demand, and won't stimulate consumers to borrow more. Furthermore, the added cost of commodity related products, lower wages or no wages, and higher government costs is or will make it that much harder for consumers to save as well.
All in all, consumer spending helps reveal the ugly truth.
On Nov 06 07:35 PM Dialectical Materialist wrote:
> When you say "Nothing good in here," I think I have to disagree.
> It is very good that credit is falling. It needs to fall much further.
> Sure I hear what you're saying about how that means the recovery
> ain't one, but it is still great news that we are not just out there
> drinking the Kool-Aid and diving further into debt. A weak holiday
> shopping season this year may seem like a bad thing, but it will
> do us a world of good down the road. I'm hoping we continue to see
> credit fall. Then maybe when jobs do come back they can be sustained
> with a stable economy, not this house of cards.
The BLS stats are also flawed, and it is time for the economists to challenge the statistics that are being broadcast. 10.2 percent unemployment is just not a real number.
Truer words were never spoken. Credit is not a creator of demand, credit is a vehicle of existing and pending demand. Right now we are in a "credit hangover" period when consumers are deleveraging and paying down balances. As soon as consumers have reached the point where the costs associated with exercising credit options no longer appear to outweigh the costs of exercising said options, then we will start to see a resurgence in consumer credit. Unfortunately with some of the ridiculous behaviors that the credit card companies have been engaging in as of late, that industry may be pounding the nails into its own coffin.
No one noticed.
In '05 Congress gifted the banks a huge change in law. And they attempted to change public behavior by forcing a doubling of minimum payments on us (anyone else remember this?) which sucked nearly $50 BILLION A MONTH from our paychecks. Wisely, for them, Congress put the date of credit card change a couple years into the future (stick the next Congress-SOP). Starting in the 2nd Quarter of 2007, I began getting notices of doubling, tripling and in a couple case quadrupling my interest rates.
Nothing changed on my end. I was using the credit given to me. I paid more than minimums, no maxed out cards and had many zero balance cards. Yet, BoA and Chase decided my stellar payment history entitled them to 24% rates.
In the past two years, they have done this again and again. Even going so far as canceling my oldest card, which screws my FICO score greatly.
Over this summer, I had three cards raise rates (again) AND had two more cards canceled. Once again, screwing FICO which will "justify" the banks upping rates AGAIN.
Many experts seem to think that the American consumer is changing their credit habits. Looking around, and yes I know it is anecdotal, the majority do not seem to be changing their habits, they are just scaling them down a bit. So, I doubt it is consumers paying off debt as much as it is consumers NOT paying and the banks charging off, and the banks yanking credit or raising the rates to the point only someone who knows bankruptcy is coming would use the cards.
I firmly believe that a new "crash" is bearing down on us, and this will be the mother of all crashes. I also firmly believe that nothing we say, do or show to the uninformed masses (and corrupt politicians) will change anything or avert our impending troubles.
Karl - LISTEN UP...
You talk a lot about increased interest rates, and decreased limits. This is true to an extent but you assume it happens to everyone. It does not. My Amex cards still have limits of over $10k, and have not changed. Their rate is 9.49%, unchanged. I have about $2k total on them, very managable.
Many on your board, including yourself, say the "everyone runs out and maxes out their cards at Christmas" and that this year that will not be possible becasue they are already maxed out. This is very far from truth, and I present myself as an example.
To increase your credibility, you should think less macro and more micro. Some of your assumptions are untrue, and you know what they say when you make an "ASSumption".
TeresaE - I agree with you about an impending crash, it is mathematically impossible for something not to happen. Unfortunately we dont know when. And I also agree we are on a train that NOTHING can stop, no amount of blogging or media coverage will change the indoctrinated and ingrained attitudes about the general American consumer. Then when something does happen, the MSM will blame conservatives, the liberal government is going to win, and we will become a socialist dictatorship. We are fighting it, but only slowing the inevitable.
Right now, the cycle still remains...get paid, pay off credit card, hvbe no money left. Use credit card to live. Rinse, wash, repeat.
On Nov 07 08:48 AM LilBob wrote:
> No meaningful economic recovery can or will occur until the consumer
> has purged his balance sheet of the inappropriate debt he has and
> is once again able to earn and borrow.
>
>
> Truer words were never spoken. Credit is not a creator of demand,
> credit is a vehicle of existing and pending demand. Right now we
> are in a "credit hangover" period when consumers are deleveraging
> and paying down balances. As soon as consumers have reached the point
> where the costs associated with exercising credit options no longer
> appear to outweigh the costs of exercising said options, then we
> will start to see a resurgence in consumer credit. Unfortunately
> with some of the ridiculous behaviors that the credit card companies
> have been engaging in as of late, that industry may be pounding the
> nails into its own coffin.
They have out tricked themselves and should be broken up. There is very little TRUST for the TBTF banks. Consumer should deal with local banks where they can see whats going on. STOP USING CREDIT CARDS.
On Nov 07 10:50 AM neontyper wrote:
> Karl is generally spot on, but the only thing I dont like about Karl's
> credit theories is he assumes too much.
>
> Karl - LISTEN UP...
>
> You talk a lot about increased interest rates, and decreased limits.
> This is true to an extent but you assume it happens to everyone.
> It does not. My Amex cards still have limits of over $10k, and have
> not changed. Their rate is 9.49%, unchanged. I have about $2k total
> on them, very managable.
>
> Many on your board, including yourself, say the "everyone runs out
> and maxes out their cards at Christmas" and that this year that will
> not be possible becasue they are already maxed out. This is very
> far from truth, and I present myself as an example.
>
> To increase your credibility, you should think less macro and more
> micro. Some of your assumptions are untrue, and you know what they
> say when you make an "ASSumption".
>
> TeresaE - I agree with you about an impending crash, it is mathematically
> impossible for something not to happen. Unfortunately we dont know
> when. And I also agree we are on a train that NOTHING can stop, no
> amount of blogging or media coverage will change the indoctrinated
> and ingrained attitudes about the general American consumer. Then
> when something does happen, the MSM will blame conservatives, the
> liberal government is going to win, and we will become a socialist
> dictatorship. We are fighting it, but only slowing the inevitable.
I associate with a wide demographic. Some people have no credit, cash only. Some have bad credit, like I said most have good credit and live within their means. I still see packed shopping malls, and am looking forward to what this Q4 season looks like. Inventory is down, but that's nationwide and old news. Lets see what consumers do with this available inventory.
I also don't see "75%" off everything in the stores. Where do you people come up with this stuff? Where do you live? Is the only store Pamida or Tractor Supply Co?
I also dont see how most you know are "surviving by the skin of their teeth". 75% of the country is still employed. You also assume "everyone uses credit cards" by your demeanor. Do you assocaite with the lower 25%? Perhaps your comments should not be taken too seriously then?
On Nov 07 01:10 PM bigbear4511 wrote:
> You base your argument that just because you have available credit
> that everyone else does? Most of the people I know have maxed out
> credit cards and are surviving by the skin of their teeth. You must
> be an outlier, certainly not the norm. If you were the norm would
> you see sales of 75% off everything a every store you go into. I
> wouldn't think so. The retailer is so desperate it will sell anything
> just to make a penny.
> Most of the people you know are maxed out? Most of the people I know are not. So neither is a norm then.
I have to side with Neon here. Most of the people that I talk to are in nearly the exact same spot that I am personally-having either recently paid off, or nearing the point of paying off all of their credit cards and minimizing other expenses, they are trying to hustle second jobs or contract work on the side and are talking about trying to use cash more and only use the credit card for things like plane tickets, where using cash involves a huge last minute premium penalty.
Anyone want to take the other side of the bet that the obama's next takeover/getting in the business is the credit card industry. Perhaps it could be a FNM issued card--no limits, o% interest rates, and forgiveness of any balance with a phone call.
What amateurs are running this country? They think that running a business is like running an ACORN shop
The credit card consumer who says "Ooops, cut up that credit card and pay it off, times are hard."
Then the credit card consumer who says "Got to have it, need to use it, run it up and worry about it later (isn't that what the banks and government do? Aren't I going to be saved by Hope and Change and the government?).
On the one hand, people being prudent and paying down debt is good for them but bad for sales and revenues and employemnt.
On the other hand, people maxing the card out and snowballing the debt until who knows when contributes to the debt bubble.
Lot's of variations between those two poles - but it all indicates contraction or unhealthy spending (debt).
If we are to have a cash-based economy, businesses should adjust their prices accordingly (For too long, we've operated on the assumption that "If they can't afford it, they can just charge it!" Guess what? The customer cannot just "charge it" any more.)
If we are to have a cash-based economy, businesses should adjust their prices accordingly (For too long, we've operated on the assumption that "If they can't afford it, they can just charge it!" Guess what? The customer cannot just "charge it" any more.)
On Nov 07 06:46 PM The Geoffster wrote:
> Financing anything with a credit card is financial ignorance. The
> only possible exception is a true emergency where there is no other
> funding source. The credit card issuers have exploited this ignorance
> by running ads to convince people that they do not need to save for
> discretionary purchases.