Saturday, June 6, 2009

Oh, how consumer credit has changed!

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.

Rebecca Wilder


  1. ..."Never, since the series was started, have consumers pulled back with such force." it's not all over then?

    ps...I can't read your opening lines for the google ads that cover them...I use firefox? petey

  2. Hi Petey,

    Thanks for stopping by. I aligned the ad to the right - did it help?

    No, it doesn't seem to be over. But there is still a lot of room for policy error....


  3. The new chart is nice and bright - I like the graduated white to black like xray film. If you give it some time, it should work.
    So much for credit growth...
    I open it in Firefox, too, and have no problems so....
    With the new credit rules, those of us who pay off monthly are going to be paying more and our interest rates are going up. so much for being "good"!

  4. A period on the chart is labelled as "The Gold Standard", while the regime of that period was a Gold Exchange Standard. Sounds alike, but not the same!