Consumer Credit Still Contracting
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U.S. consumer credit fell in August for a seventh straight month as banks maintained restrictive terms and job losses made households reluctant to borrow.Consumer credit fell by $12 billion, or 5.8 percent at an annual rate, to $2.46 trillion, according to a Federal Reserve report released today in Washington. Credit dropped by $19 billion in July, less than previously estimated. The series of declines is the longest since 1991.
Consumer credit is still contracting at a startling rate. Since Americans don’t save, credit acts as the lifeblood of our economy. Without credit, Americans can’t possibly consume, which means our economy can not grow. Remarkably, even after a sharp rise in savings rates, consumption is still playing a historically elevated role in our GDP. In other words, consumption must come way down before we can start basing for a (real) recovery. Expect more stimulus from the government to stem this decline in consumer spending.
Cash for Clunkers
Revolving debt, such as credit cards, decreased by $9.91 billion in August, the Fed report showed. Non-revolving debt, including loans for automobiles and mobile homes, fell by $2.07 billion. The Fed’s report doesn’t cover borrowing secured by real estate.The category that covers car loans fell at a slower pace as the government’s “cash for clunkers” program helped push up personal spending in August by the most since October 2001.“Outside of the cash-for-clunkers spending frenzy, which inherently may have required a purchaser to take out a loan, the decline in consumer credit would have continued to accelerate in August,” Bank of Tokyo-Mitsubishi UFJ’s Zentner said. “Come September, we’ll see consumer credit pick up its old trend and continue to drop” at an accelerating pace.
There is going to be a period of time when we experience a severe hangover from all the stimulus spending. The folly of government intervention will then be clear to everyone. Basically, ignore anything the government says about a recovery and stay focused on consumer credit outstanding and unemployment figures.
