Comments on: Data on past consumer deleveraging during recessions

By: Anonymous

Anonymous — Fri, 09 Oct 2009 14:41:00 +0000

When looking at non-revolving credit, which increased 11.3 billion NSA from July to August, it is clear that Cash for Clunkers and student loans caused the month-to-month jump, and, likely, are one-offs.

The real focus of consumer credit should be directed toward revolving debt – credit cards – which for the first time ever is declining year-over-year, in August at a 7.8% annual pace NSA. Considering revolving consumer credit grew this decade at 5.5% annually through 2008, and grew 11.0% annually for almost 30 years, from 1979 to a 2008 peak of $988 billion NSA, the nearly $90 billion reduction (NSA) from Dec. 2008 to Aug 2009 is meaningful and would equate to an absence of consumption of about 1.2% of GDP for 2009 including the 5.5% growth which did not occur.

That is a collapse in revolving consumer credit, and the spending represented by it is not coming back anytime soon, if ever. It’s a component of the reset of GDP to a permanently lower level in the absence of significant inflation.

By: Anonymous

Anonymous — Fri, 09 Oct 2009 13:58:00 +0000

Interesting Analysis. Considering this downturn was caused due to excessive debt and a banking collapse, is this comparison still valid? Would you not expect this big drop in consumer credit?

By: aitrader

aitrader — Fri, 09 Oct 2009 11:22:00 +0000

I think you also need to factor in the commercial failures (including commercial credit losses) sweeping the globe right now. We did have a 3rd quarter of “less bad” earnings so far with Alcoa leading the way. It is not all that surprising to us entrenched bears that a quarter or even two of “less bad” numbers may occur after trillions in government printing has flooded the globe with liquidity.

The key problems are the drop in consumer demand and resulting drop in commerce. And I wonder if the Alcoa (and possibly other firms’) numbers aren’t due in part to shedding lots of employees, consultants, etc. that may help their profit for a quarter or two but will push them (and others) over a cliff as demand dives even further.

Take a look at the BDI. It was around 2200 last I checked. The break even figure for shippers is supposed to be $3200 on average. How can these earnings numbers be positive, at least long term, when trade is basically collapsing?

I just don’t buy it.

And don’t even get me started on Europe’s problems and what I believe will be bank collapse round two in November…!