Monday, November 24, 2008

Consumer Credit Hits Record HIGH, Belying “Credit Crunch”

The “Credit Crunch” that Wasn’t

US total consumer credit hits record HIGH after a year of the so-called “credit crunch,” according to the Federal Reserve’s latest provisional figures released November 7, 2008.

The graph shows that 3rd-quarter 2008 total US consumer credit grew 3.7% above 3rd-quarter 2007, when the “credit crisis” began.

Not only did consumer credit not shrink, it grew.

September 2008 consumer credit is higher than the same month of any year prior, higher than the housing-bubble peak.

Index of US total consumer credit, growth year-over-year (YoY), September-September:

1998 = 1.00
1999 = 1.08
2000 = 1.19
2001 = 1.30
2002 = 1.40
2003 = 1.47
2004 = 1.54
2005 = 1.62
2006 = 1.69
2007 = 1.79
2008 = 1.85

Consumer credit expanded to 4 TIMES the Fed’s claimed 2% per year target for core inflation, which, after 10 years, would be a 2008 index of only 1.22.

A 2% growth rate will not double the initial amount until 36 years yet consumer credit nearly doubled in 10 years and continued its nearly relentless expansion during a year of what was supposed to be the worst credit crunch in memory.


Latest figures show total outstanding US consumer credit of $2.564T (2/09) at less than 1% from the highest point in history set at $2.583T (9/08) during the so-called "credit crunch," higher than any month before the so-called "credit crisis" began at $2.481T (8/07), and higher than any month during the massive credit boom.

8/07 "Credit Crunch" allegedly begins
2/09 Total outstanding US consumer credit is 3.3% higher than 8/07

Lending Keeps Growing, Growing, Growing

Total credit of all commercial banks (TOTBKCR), percent growth, Year over Year (YoY), remains well above 0 at about 2.5% growth (similar to the 1990s and 2001 recessions):

Total credit of all commercial banks (TOTBKCR), absolute levels show recent volatility but so far remain well above the pre-"Credit Crunch" levels of the massive global credit bubble:


Even if consumer or bank credit does decline, does it decline by more than government debt increased or by more than money increased?


The notion that we lack credit now is madness.

I explained over a year ago that we have
no credit-supply crunch, but we do have a number of other crunches that policymakers ignore or misread.

The government continues its
misguided bailouts and hyper-debt policies.

What This Means for Inflation Vs. Deflation


lineup32 said...

Question: Leverage credit creation based on generating credit with little capital resulting in the massive structured credit product business has been kput based on media reports, could you comment about this aspect of the financial engineering world and how you see it impact consumer consumption levels.


J at IHB and HFF said...

Hello. The credit industry's deleveraging should reduce consumer credit to lower than what it otherwise would be (simply less money to lend, which is good since the problem was that the excess bubble credit ran out of good borrowers and began chasing worse and worse risks).

So far, there was one negative month followed by a return to credit expansion, so the quarterly data show a reduction in the rate of growth of credit but still growth.

Continued deleveraging on the lender side eventually should lead to an understandable, sensible, and welcome actual decrease in total consumer credit (even a 1/3 crash merely brings us to 22% higher than 1998).

The problem is that the government and MSM foolishly think that increasing debt faster than income is great, so they panicked when the quarterly rate of credit growth merely slowed, even though the moderated credit growth was still faster than income growth (given the incipient recession toward negative GDP).

lineup32 said...

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