Consumer Credit Plunges $17.5 Billion On Consensus Of -$5 Billion, Largest Drop On Record

US consumers have said "enough" - in November consumer borrowing plunged by seasonally adjusted $17.5 billion, the largest drop in history, on a -$5 billion consensus... and the market doesn't move one bit. Quants 1: Efficient markets 0. In November total credit dropped at a whopping 8.5% annualized rate, and while auto-related nonrevolving loans dropped a mere -2.9%, revolving credit plunged a stunning 18.5% annualized. This is a full blown consumer borrowing revolt.

Here is the month over month change in total consumer credit:

A chart of total consumer credit: in November it was at $2.464 trillion, after a record 10 sequential months of decline.

Comments

[boooyaaaah]

Hey Tyler

What happened to the positive anti regulatory reform article

The one that headlined Barney Frank --

The Article said limits on shorting (naked?) was wrong

I wanted to re-read the article --- oh well, I gues you decided I din't need to read it anymore-- thanks for looking out for me

Tyler --- what about move your money?

http://www.businessinsider.com/ten-lessons-from-the-financial-crisis-that-investors-have-already-forgotten-2009-11#regulators-are-captured-by-bankers-4

[vreporter]

This seems to be the common understanding on this reading:

"U.S. consumers, meanwhile, are cutting debt at a furious rate, slashing their non-mortgage borrowings by a record $17.5 billion in November, the Federal Reserve reported Friday. While total consumer credit contracted at an 8.5% seasonally adjusted annual rate in the month, revolving credit, such as credit cards, collapsed at a shocking 18.5% annual rate."

However, there is more closure of dormant accounts taking place in this number than there is consumers pulling back. Banks have been closing down large volumes of high credit yet unused accounts (more than one year). Once this is understood, I don't see this number in equal comparison to previous or future months.

This was a cleanup exercise for capital requirement and reserve purposes. They've pissed off a lot of customers but were they really "customers" if they weren't drawing or borrowing on those available credit balances?

[deadhead]

I cannot document it, but most dormant accounts were slaughtered in early 09 to mid 09.

[vreporter]

There were notifications throughout the year but actual closings were piled into year-end. I haven't clarified the timing deadline "reasoning" yet but December was a pile-up of such terminations, maybe because they were among the last waves - they were high FICOs, hence large limit accounts... their last resort so to speak. The future will give us follow-up answers if we can believe the numbers at all.

[vreporter]

Lest I hear from the stands; I am not denying that there is a consumer contraction - in fact it WILL get worse. But THIS number and the rate of deterioration is an aberation due to the actions and conditions described above. The market "ignored" it in neutral fashion for that reason.

The market is still an accident waiting to happen - but we've been waiting a long time. This week we cracked the 2/3 Fib retracement level of the entire move down from the all-time high to the recent plunge. So the steam train continues to claim its victims. Most readers of this blog are among them!

[Anonymous]

"Revolt." What nonsense. It's pure liquidation. Soon you will see places in this country where there is simply no money, no piece of money, period.