The Economy is NOT OKAY: Consumer Credit Plunges By Record $21.6 Billion

Zero Hedge: Consumer Credit Plunges By Record $21.6 Billion As The Main Driver For GDP Growth Says "Enough"

A record plunge in consumer credit, and the American middle class has just given the new and improved Obama-endorsed "spend spend spend" recovery and confidence plan the middle finger.

$6.1 billion decline in revolving credit, and a $15.4 billion drop in non revolving credit, on a $4 billion expected decline! June's decline was revised downward to a $15.6 billion reduction in credit.

Someone please spin how a record consumer retrenching is in any way benficial to America's GDP.

Yet TradeBot and HAL9000 have largely priced in this $17 billion miss to consensus.

Market Ticker

Reuters

Need anymore proof we're in a Depression?

To all you nay-sayers who said everything is fine the economy is improving. Please consider where you get your economic news from because I spend all day reading this stuff and we ARE NOT fine.

[edit on 9/8/2009 by Tentickles]

I hear what you're saying. I however am a little obsessive with my bank cards and pay them off at the end of the month always have.

Debt falls at fastest pace since D-Day

It's the paradox of thrift, and it's killing us. If consumers can't spend, and businesses won't, the only source of demand in the economy will be the government. Stimulating the economy by lowering interest rates hasn't worked. Stimulating the economy by giving people money to pay off bills hasn't worked. The stimulus from direct government spending can't come soon enough.

reply to post by SLAYER69


THAT ARTICLE HAS CHANGED! I kid you not, I read the "Consumer Debt Plunges" article on Marketwatch while I was eating my lunch at 11:50 AM (Pacific time) and it did NOT contain any negative connotations. In fact, the article had almost a positive spin to it. All of this stuff:
www.marketwatch.com...

Economists said shrinking credit might strangle the recovery.

"There is no real way to put a positive spin on these data. Credit is still shrinking and that is going to have an impact on consumption," wrote Charmaine Buskas, senior economics strategist at TD Securities, in a note to clients.

"Without the smooth functioning of credit markets, the recovery may stall," Buskas said.

was not in the original story. Interesting that the timestamp on the edited article is 4:07 PM EDT, which is 7 minutes after the markets close. I'm going to keep an eye on Marketwatch for awhile and see if this becomes a trend... wait until after the bell before identifying the negative trends, then add these bits to previous pre-bell articles.

Edited to say: I'm bugged by this for obvious reasons, but I want to identify my reasoning for being so. If you remove the section of the article I quoted above, you jump from them talking about how much consumer debt has fallen and it being a good thing (thank God they didn't change their first paragraph!!!)

Americans, busy paying off bills and saving money, now hold only about 450 times more debt than they did when the GIs stormed the beaches at Normandy.

then it jumped past the negative stuff above and went into this:

Josh Shapiro, chief U.S. economist at MFR Inc., said he's one of the most pessimistic economists regarding the outlook because consumers are drowning in debt.

Fed data has shown that the value of both household net assets and net worth has plunged by about $12 trillion from the peak in mid-2007, Shapiro said, and households are struggling to get their balance sheets in order.

The retrenchment of credit "is still in its early days," Shapiro said.

"Consumers are doing their best but it took a long time to build up the debt and it is going to take a long time to work it off," he said.

Am I losing my mind, or would most people just casually reading that article, sans the "no way to put a positive spin on this" segment, not think that this was a great thing purely based on the fact that they seem to be trying to draw a straightline between paying off debt and getting your ballance sheets in order?

[edit on 8-9-2009 by burdman30ott6]

reply to post by burdman30ott6


I wasn't aware of that. I usually check first thing in the mornings and often during the day. Today has been hectic around here. Short handed today...

Thanks for the heads up.

There is no doubt about it that the Credit Markets are still frozen.

In part that could be because the banks are making almost as much money these days as Exxon/Mobil but off of overdraft and non suffecient funds and returned item fee charges.

There is an old saying in the business world that truly savy business people know well...

"If you want to get poor cater to the rich, if you want to get rich cater to the poor"

The poor pay more for goods and services than the rich do and complain far less regarding the quality of the goods and services.

The Powers that Be are making a fortune off of American's new found poverty. I would not expect them to reverse these trends anytime soon.

We truly are in a recession and it is worsening not getting better.

Great find.

Dropping debt it awesome long term but in the short term it's really bad considering that's less spending I understand the concept.

I like the long term view on the topic. Cleaning house is always a good thing. We have been over consuming beyond our means. In a recession/Depression there is always deflation to get down to the true value. Except of course in the 70s with stagflation.

My only concern is having the bottom dropping completely out from underneath.

reply to post by SLAYER69


I agree, but it seems that they're skirting a real issue here. People paying off debt is a good thing, people not able to get credit is bad, very bad.

If consumers can't spend, and businesses won't, the only source of demand in the economy will be the government

What they do not say in the article (and, admitted what I foolishly didn't ask when I first read it) was "How much of that 10% decline in consumer debt was actually people paying off their debt and how much of it was in the form of debt write-offs and write-downs?" I do not know where one could get that information, but I'd be willing to bet the percentage of write-downs/offs exceeded the percentage of repayments. Hate to say it, but the banking industry truly does appear to be setting the tables for a full repeat of Fall 2008.

reply to post by burdman30ott6


Well apparently we are not the only ones trying to put a positive spin on things. I dont know where they are going to find the markets for their products if we are not buying the extras...
Source

BEIJING (Reuters) - Chinese exports fell less sharply in August from year-earlier levels than the 23 percent drop seen in July, as the overall outlook for overseas shipments improved, a top customs official said on Monday.

Its not just people paying off/down loans banks are pulling back from making new loans too... Don't believe me call your bank right now and ask if you can apply for a HUD 203(k) that's the loan most people use to buy a home and throw in up to 35k extra for remodeling... they wont do it... in fact there's a good chance they wont even give you the paperwork to apply...

were back to banks hording what meager assist they have and not taking any risks whatsoever... It looks like the credit market is drying up again... to many losing their jobs and no one safe anymore... Record numbers of auto loans being defaulted... still dealing with an avalanche of foreclosures and growing...

They can spin it anyway they want too but the fact remains the 21.whatever, Billion in credit didn't just magically get paid off. those loans went bad and there being very picky about making more loans...

reply to post by burdman30ott6


Well I'm not exactly sure how to take the data it states both...
Same source

U.S. consumers took their biggest step yet toward repairing their finances in July, cutting their outstanding debt by a record $21.5 billion, the Federal Reserve reported Tuesday.

Well, I for one know that both sides of the coin are true.

I've went from a (minimum amount of debt + no savings) to (no debt + 2 years surplus savings and growing). I prefer living life without debt and having enough savings to fall back on. I've actually almost lost some of paychecks because I've taken too long to cash them or deposit them!

Also, no debt doesn't mean I don't spend. I actually spend more liberally than I did before, just not on things I can't really afford or don't really need.

However, I also recently looked into buying a house now that the Market is getting pretty low. I couldn't find a lender anywhere that would give me a loan. The biggest loan anyone is willing to give me, especially now that I am not in debt, is small car dealerships with in-house financing. No thanks, I'll pass.

So yes, it is good that Americans are significantly cutting their debt...and it's good for the economy long-term. And yes, it is bad that the Financial Institutions aren't extending Credit to those that want it...that is bad for the economy short-term (just how long is going to take people to save up to buy a $250K house in Cash?).

Eventually the Financial Institutions will get desperate enough and do anything to convince people that they need loans and credit...but perhaps by then, we will have discovered we don't need them.

reply to post by Tentickles


Wait you mean Obama didn't save us like he said he did?! I don't understand!

-Assumes running around in panic position- And... start!

I had a card just recently that had no balance that I had not used in quite some time that the bank decided to close with no advanced notice a couple months after they upgraded the account.

My understanding is that the "official" line is they don't want people inflating their credit scores by keeping rarely used accounts. No doubt a contributing factor is through reducing the credit availability even of good customers who pay their bills.

I just received a 16% raise in pay and a 10% bonus. The economy really sucks.

Originally posted by SLAYER69
I hear what you're saying. I however am a little obsessive with my bank cards and pay them off at the end of the month always have.

Debt falls at fastest pace since D-Day

It's the paradox of thrift, and it's killing us. If consumers can't spend, and businesses won't, the only source of demand in the economy will be the government. Stimulating the economy by lowering interest rates hasn't worked. Stimulating the economy by giving people money to pay off bills hasn't worked. The stimulus from direct government spending can't come soon enough.

The thing is...they haven't given people money to pay off bills. Very few qualified for the "middle class" break, and its about $40 extra month. That's not even dinner and a movie money, anymore.

reply to post by A Fortiori


My question is who is relying on that?
I'm not, and it shouldn't be relied on.

Originally posted by concernedcitizan
I just received a 16% raise in pay and a 10% bonus. The economy really sucks.

Wow. Congratulations!

How does this pertain to the topic of consumer credit? Do you have more credit now that you had a fat raise and bonus? Has your increase in salary allowed you to forgo any of the problems that a good portion of the rest of the world are experiencing?

reply to post by burdman30ott6

THAT ARTICLE HAS CHANGED! I kid you not, I read the "Consumer Debt Plunges" article on Marketwatch while I was eating my lunch at 11:50 AM (Pacific time) and it did NOT contain any negative connotations. In fact, the article had almost a positive spin to it

Welcome to the world of the Spin Doctors. Those of us who were fighting the WTO Animal ID found articles we quoted disappeared or changed and then the USDA gleefully accused us of spreading "misinformation" It was VERY irriating. As more people notice and blog about the economy expect the information to become "fluid"

reply to post by KSPigpen


Forego.

Originally posted by ProtoplasmicTraveler
There is no doubt about it that the Credit Markets are still frozen.

Indeed. And in this we are stuck between a rock and a hard place. Because the economy can't function with frozen credit markets. And yet so much credit has been created and "injected" into the financial sector that it is truly terrifying (see chart below):

[atsimg]http://files.abovetopsecret.com/images/member/3f0c1cd603cc.png[/atsimg]

Right now, all this money is just sitting there in bank coffers, so banks can seem healthy and pat themselves on the back and say "see, the crisis is over." But if all that liquidity "leaks" into the "real economy" then the potential for hyperinflation is obvious.

There are two wolves at the door: frozen credit markets and hyperinflation. Which one do we let in?