Check out the consumer credit contraction chart, via David Rosenberg — it is astonishing:

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United States: Consumer Credit Outstanding (1940-2009)

(year-over-year difference, US$ blns)

Credit crunch

Source: Haver Analytics, Gluskin Sheff

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Rosie notes that “It’s not just weakening loan demand — financial institutions are rightly becoming more judicious as consumer creditworthiness deteriorates under the weight of mounting joblessness.”

We also know that U.S. credit card defaults hit a record-high in August (Fitch data) — charge-off rates rose to 11.52% from 10.55% in July.

DR also adds:

“If the household debt/income ratio were to ever revert back to 1983 levels, which is exactly where the employment/population ratio has fallen to, we would be taking off at least another $5 trillion of deleveraging left in the pipeline as far as the consumer is concerned. This is going to prove to be a very lengthy process.”

Lastly, Rex Nutting reminds us that the credit squeeze on entrepreneurs is threatening to derail any recovery:

“According to weekly figures provided by the Federal Reserve, total loans at commercial banks have fallen at a 19% annual rate over the past three months, while loans to businesses have dropped at a 28% annualized pace.

Last autumn, bank lending temporarily expanded when other sources of funding from the shadow banking system dried up after the collapse of Lehman Bros. Since then, however, total outstanding bank loans have dropped at an accelerating pace.

The decline in bank lending mostly affects smaller businesses. Larger corporations have alternative sources of funding, including retained earnings, corporate bonds, securitized loans and new equity. Those other sources of capital have increased in recent months, but not enough to offset the decline in bank lending.”

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Source:
Banks cutting back on loans to businesses
Rex Nutting
MarketWatch, Oct. 9, 2009, 6:00 a.m.

http://www.marketwatch.com/story/banks-cutting-back-on-loans-to-businesses-2009-10-09

Category: Credit

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

34 Responses to “Ongoing Credit Contraction”

  1. dan10400 says:

    Good thing total credit outstanding is smoothed by integration.

  2. HarryWanger says:

    I don’t quite get the credit contraction’s role in this economic recovery. We’ve seen retail sales highest in 10 months so maybe this credit contraction isn’t such a major component to recovery. Could it be that people are paying cash? Debit cards? Whatever the situation, this contraction doesn’t really seem to be affecting the consumer.

  3. this a good chart, though, it should be contrasted w/ other ‘total credit’-oustanding metrics (e.g. Gov’t, FedRes, Corp., etc.)

    w/that it would be clear to see who’s wearing the ‘bullesye’..

    http://www.mytargets.com/

  4. HCF says:

    @Harry:

    Yes, retail sales are at the highest level in 10 months, but it’s instructive to note that even with that great rise, we’re still only at 2005 levels…

    Retailers’ Sales for September Only Reach 2005 Levels:
    http://www.nytimes.com/2009/10/09/business/09shop.html

    Do you think that the ability to tap money you don’t (and may never) have yet (i.e. debt) might have enabled the average person to gorge on homes, cars, and consumables that he/she might not have other been able to?

    HCF

  5. Stuart says:

    This is not your Father’s recession.

  6. It is ridiculous to display $ amounts like that over 60 year periods for things that are exponential in nature. How does the chart look on a percentage basis?

    Come on Rosie. Getting desperate, eh?

  7. Rates are much different now than 1983 as well so the burden in that regard isn’t quite as bad. But there is no doubt we had a massive debt bubble (still do if you are the USG) and are working our way through it. Problem is TPTB want credit expansion at all cost.

  8. HarryWanger says:

    HFC: Sales have reached 2005 levels indeed. The Dow through that period ran in a range from just over 10k to 11k before taking off higher. People here seem hell bent on history repeating. So am I to assume history will repeat with retail sales moving higher and higher while the Dow makes new highs?

  9. km4 says:

    deleveraging and dieting is hard work for too many Americans

  10. dead hobo says:

    I did my part to contribute to the collapse of modern society. Last summer, I paid off my house using a matured bank CD. I don’t owe anyone squat. My real estate taxes are less than rent of an apartment less than 1/2 the size of my home or the rent on a lot in a nice trailer park. I buy a lot of Tommy Bahama clothes off eBay for a fraction of retail. I look great and pay thrift store prices sometimes. I cook a lot because I make better food than a lot of restaurants. I feel pretty damn good and I look great.

  11. constantnormal says:

    It would be a more useful chart if he superimposed the growth in public (a.k.a. government) debt with it. The collapse in consumer borrowing becomes less impressive then.

    Debt is debt, regardless of where it comes from.

  12. dead hobo says:

    constantnormal Says:
    October 9th, 2009 at 12:34 pm

    Debt is debt, regardless of where it comes from.

    reply:
    ——–
    Not really. Uncle Stupid borrows for consumption. Investors borrow to buy inflating assets that will probably blow up in their faces before the loan in paid off. Normal people used to borrow for anything that looked interesting, but now will probably borrow only for things that will last longer than the payment period.

  13. wunsacon says:

    >> I feel pretty damn good and I look great.

    Considering your handle, that’s saying a lot!

    ;-)

  14. constantnormal says:

    Here’s a very good chart that shows the growth/shrinkage of debt from various sources, outstanding debt, and the growth/shrinkage of the US economy (represented by the GDP):

    http://www.dailymarkets.com/wp-content/uploads/2009/10/usdebt.png

    Graph Source: Federal Reserve & New York Times.

    page source/attribution: http://www.dailymarkets.com/economy/2009/10/01/us-governments-borrowing-policy-moves-from-care-free-to-reckless/

  15. rootless_cosmopolitan says:

    HarryWanger,

    “I don’t quite get the credit contraction’s role in this economic recovery. We’ve seen retail sales highest in 10 months so maybe this credit contraction isn’t such a major component to recovery.”

    Are the retail sales seasonally adjusted? If they aren’t they have to be compared to the non-seasonally adjusted change in consumer credit. Latter increased recently, although the seasonally adjusted consumer credit decreased.

    As for the role of credit contraction or expansion in the economy: Generally: demand from businesses + consumers + government = consumer income + business income + government’s tax income + new private debt + new government debt

    For instance, you could have decreasing consumer debt, but increasing transfers from the government’s to private balance sheets financed with increasing government debt. That is exactly what has happened with the recent “recovery”. The contraction in private debt has been largely compensated by an increase in government debt.

    rc

  16. dead hobo says:

    wunsacon Says:
    October 9th, 2009 at 12:43 pm

    Considering your handle, that’s saying a lot!

    reply:
    ———-
    It’s a lifestyle. Plus, I can drink a lot and be an obnoxious slob. When people say “look at the bum” I can say “Yes I Am. That’s my name. Don’t wear it out.”

    Don’t be offended by my handsomness.

  17. constantnormal says:

    What is astonishing is that we still have $13.7T (as of June 2009) in household debt outstanding.

    This is a miniscule decline and will have to pick up the pace if we are to reduce household debt by any perceptible amount.

  18. constantnormal says:

    Another piece on the continued overall debt expansion …

    http://www.nytimes.com/2009/09/26/business/economy/26charts.html?_r=1

    The consumer credit contraction is not causing overall debt to contract. Only the consumer is busted. It will take a while before Uncle is busted too. I can’t wait to see what happens when the Fed tries to stop printing money to support the Treasury — my guess is that at the end of this month, Bernanke will blink and continue printing money to buy Treasuries. The dollar decline will thus continue, as will the stock market pseudo-rally.

  19. wunsacon says:

    >> Don’t be offended by my handsomness.

    I’m might be jealous. But, I’ll try not to be a hater.

    Well, off to the salt mine… As Al Gore uncharacteristically said in a Futurama episode: “peace out, y’all”.

  20. rootless_cosmopolitan says:

    Economic Darwinism,

    “It is ridiculous to display $ amounts like that over 60 year periods for things that are exponential in nature. How does the chart look on a percentage basis?”

    1. Go to following link:
    http://research.stlouisfed.org/fred2/series/TOTALSL?cid=49

    2. Click the link for “% Change from Yr. Ago” below the graph.

    There you have it. It’s the largest percentage decrease after WW II.

    rc

  21. cvienne says:

    Don’t worry people… There IS NO “new normal”

    Larry (Jackboot) Summers says so…

    http://www.bloomberg.com/apps/news?pid=20603037&sid=awkCb_.i0w4s

  22. cvienne says:

    They HAVEN’T EVEN STARTED to acknowledge what CRE is going to bring to the table on this…

  23. HCF says:

    @Harry Wanger:

    >So am I to assume history will repeat with retail sales moving higher and higher while the Dow makes new highs?

    I don’t believe that history repeats itself to a T, but it’s always worth mentally noting past trends. I do agree, though, that IF retail sales move higher and higher, it’s a fair assumption to believe the Dow will move higher and higher. I just don’t believe the move up will continue for the length of time or to the degree that you do.

    HCF

  24. rootless_cosmopolitan says:

    “Don’t worry people… There IS NO “new normal”

    Larry (Jackboot) Summers says so…”

    My table just got another bite mark.

    If this were so it would mean things will go back to how they were before the recession. To go back how they were would require another round of exponential expansion of household and business debt to get a GDP growth similar to previous business cycles. Total household and business debt amounts to about 25 trillion US-dollars. This debt almost doubled every decade for the last three decades to get the growth during the expansion phases of the business cycle. Now, how probably is it that households and businesses will load on another 25 trillion dollars of debt in the next ten years, Mr. Summers?

    rc

  25. HarryWanger says:

    A bit off topic but any ideas about what to infer regarding GDP from today’s trade numbers?

  26. socaljoe says:

    A chart showing 60 years of data is meaningless if presented in nominal dollar terms. I suspect, normalized for inflation, it would be much less “astonishing”.

  27. rootless_cosmopolitan says:

    Oh, I forgot to mention that the 25 trillion dollars of household and business debt is the amount w/o the debt of financial institutions. With financial institution, private debt amounts to 41 trillion dollars.

    rc

  28. HarryWanger says:

    socajoe: The link referencing percentage change is much more telling. Although I’m not sure if that reflects inflation or nominal dollar terms that the percentage is based upon.

  29. rootless_cosmopolitan says:

    Harry Wanger,

    “The link referencing percentage change is much more telling. Although I’m not sure if that reflects inflation or nominal dollar terms that the percentage is based upon.”

    This is based on nominal data. You make a valid point here. I agree that there would be more information in normalized data. One could also normalize the change in credit relative to nominal GDP. After all, it’s the debt relative to income what’s important for the ability to load on more debt and to pay off debt and interest.

    rc

  30. ben22 says:

    Harry Wanger says:

    “I don’t quite get the credit contraction’s role in this economic recovery. ”

    Well, that would explain everything then wouldn’t it. You manage OPM? Wow….

  31. Kort says:

    You can have the best retail in 10 months because the prior 9 months were terrible and it’s back to school. People who couldn’t afford (job loss, no credit card) to buy earlier still aren’t buying. People buying now are people with some means and/or aren’t scared.

    It’s like…Months 1 through 9: nobody spends
    Month 10…some people spend a few dollars.
    Presto, month 10 is the BEST!

  32. skysurfer says:

    Why is everybody all surprised that retail sales were good in September? We had a late labor day and thus a later back to school for a significant part of the nation. Late enough that one could wait until September to start school purchases. I know that we waited until after school started to buy school supplies, so we could make one trip. If Easter is in March, everyone makes a big deal about retail sales being skewed. Why not the same intellectual honesty when a much bigger retail event, back-to-school, is later than normal? Oh, yeah! It wouldn’t be a “green shoot”. In case your wondering, I paid cash only and about half of what we did last year due to some screaming deals. I love me some deflation.

  33. Harry Wagner says:

    @Ben22 – But can’t they just sweep the credit contraction under the rug like everything esle and call it good, because I don’t want anything getting in the way of this boom cycle we got going on here.

  34. CDizzle says:

    Good to see the H&S pattern ain’t dead yet. ;-)