Saturday, June 6, 2009
I have been reading Maxed Out Mama's blog - she is good. She wrote a small bit about the Federal Reserve's April consumer credit report, sliding in a comment about consumers using their tax refunds to pay down revolving credit. I liked that because I noticed the same thing in the personal income report.
But there are likely some supply issues here as well. Consumers are actively paying down debt because they "want to" (i.e., demand side), but likewise, they are being forced to as credit card companies slash credit limits. I have received two notices in the mail just in the last month (or two) that either canceled or reduced the limit on a card due to "inactivity". Think about someone who lost their job and is living off of credit right now - if their credit limit was cut, then they would be forced to pay down or default even if the full intention was to continue spending.
However, the trend is certainly clear: consumer credit is doing something that it hasn't done in a long, long time (ever)....retrenching.
I got a new computer (netbook) and downloaded openoffice - it is okay so far, but that is why my chart is so different. At any rate, the chart illustrates the monthly change in consumer credit (not annualized) since it was first measured in 1943 through April 2009 (I couldn't figure out how to change the axis to show the later dates....oh well, next time). I highlighted the gold standard era (Bretton Woods), which tamed credit growth. And then the move to fiat currency, which provided profit-seeking banks plenty of tools (i.e., printed money) with which to create added credit flow.
Never, since the series was started, have consumers pulled back with such force.