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The Consumer's Credit Card Capacity Collapse; R.I.P. U.S. Middle Class Purchasing Power
Even as the government has taken on leadership roles in virtually every segment of the financial and corporate arena, and we see the impact of excess central bank liquidity every single day not in pass-thru lending by the major commercial banks, but in the price of Amazon stock which is now trading at Strong Conviction Lunatic Buy levels, there is yet one segment that the government is powerless to manipulate, no matter how hard CNBC tries (with its constantly declining audience each month the administration could have chosen a more popular medium to brainwash the masses). And, unfortunately for Obama, it is the one segment that is critical to this economy improving: the US consumer, which until recently accounted for 75% of America's GDP, and by implication, almost a third of world GDP.
The recurring problem: continued massive credit contraction - seen every month not only in the government's G.19 report, but direct from the horse's mouth: the big credit card companies. The most recent picture is indeed gloomy. After total unused credit card lines peaked at $4.7 trillion in Q2 2008, the number has plunged to $3.5 trillion: a $1.2 trillion evaporation of consumer purchasing power. The flipside- utilization rates continue to rise as the actual amount borrowed on credit cards is also declining, but a much slower pace. According to the FDIC's just released report, there was $784 billion borrowed between credit card loans and securitization receivables. The U.S. consumer is not only retrenching, but banks continue to limit credit card purchases, which further constrains spending, creating a vicious deleveraging, and thus deflationary, loop.
We present data by bank for the four main credit card institutions as well as for the entire credit card lending segment in its entirety.
Bank of America's most recent total credit card commitment stood at $572 billion, a stunning 37% drop in available credit card lines from the peak in Q2 2008 of $914 billion.
The same trend is visible at Citi, who total unused card capacity of $815 billion is a 28% decline from the top of $1.13 trillion...
...at JPM, a 26% decline from the peak of $785 billion to the current $584 billion...
...and at Discover, which had a mere $174 billion in commitments.
Combining the "Big 4" demonstrates just how badly the credit contraction has impacted the major banks, which are obviously in cash hording mode, and are making life for the average consumer that much more difficult as utilization rates are forced to increase (presumably at higher accompanying rates and fees) while overall unitilized capacity collapses.
Expanding this analysis to the entire credit card industry demonstrates a comparable trend: utilization rates have hit history highs at over 18% while the total CC commitments have dropped, as noted above, from $4.7 trillion to $3.5 trillion.
And this scenario of consumer leverage collapse is only just getting started. According to Meredith Whitney:
Considering that $1.2 trillion has been cut since 2Q08, we believe that by the end of 2010, $2.7 trillion of lines will be expunged from the system. We believe unused lines will be reduced by $2 trillion, to an estimated $2,700B by 4Q09, and nearly $2.7 trillion to an estimated $2,011B by 4Q10. Concurrently, we believe the utilization rate will increase from 17% at 4Q08 to 23% by 4Q09 and 30% by 4Q10.
These are some seriously deflationary observations. Here is how they look graphically.
What Meredith is saying, and what many, including Obama, are starting to grasp, is that the middle class as a driver of the US economy, is now a relic of the pre-Lehman days. Kiss goodbye to that traditional, resilient 75% component of GDP. In its place, assume the US government will do all it can to make up for the shortfall. Alas, that is a recipe for certain disaster. The only thing that Obama can and will do, is focus on the upper class to spearhead tax revenue generation, whether it is from capital gains tax (think forced stock market appreciation) or from federal, state and income tax (recall, the upper 5% of US society accounts for possibly 50% if not more of all Federal tax revenues). Which is why the liberal party has now been forced to become "republicans in democrat clothing," pandering not to the lower and middle classes, but exclusively to the top percentile of American society. Zero Hedge wonders how long it takes before US voters finally have the epiphany that in Larry Summers, and his economic pawn "superior," they have accomplished the one most historic achievement of electing a fully 180-degree converted chameleon.
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Deflation/inflation debate is irrelevant. This whole bitch is coming down. Got Gold?
it is the Humpty Dumpty Syndrome. The mess our peers created will have to be put back together by their childern. 3 cheers for the 401K which destroyed America and the credit cards that helped finance to fairy tale.
Take a look at what you children will look like in a few short years:
http://www.cnn.com/2009/WORLD/asiapcf/06/05/japan.herbivore.men/index.html
They are young, earn little and spend little, and take a keen interest in fashion and personal appearance -- meet the "herbivore men" of Japan.
Face it. Someone is ill-equipped. Would Ron Paul run the show like this? I HIGHLY doubt it.
http://www.thepetitionsite.com/3/impeach-obama
wait, if overspending (in part) as well as our wanton ways and penchant for shoddily-made asean goods, and the TBTBTDBS (ok, NOT too big to be total douche bags) bankstas got us into this mess, why is it boo!!!!, bad and scary that we're now like 'f you, banks' and we're not overextending the shiat out ourselves anymore?
that being said, ZH et al., you RAWK so much, it exacerbates the inherent vertigo.
goddamnitsomuch......
I though the banks were going to lead us out of this mess. Well, not according to the chart of the XLF. The picture of the chart is posted here http://www.graspthemarket.com/articles/20091123a.php
It is definitely lagging the overall markets. They aren't lending because they can't.
good post highlighting a scary trend. another possible (and admittedly extreme) effect of lower available credit lines and massively higher utilization rates could be lower credit scores. Utilization is one of the many cogs in computing FICO scores and if this heats up as Whitney anticipates, it could start to negatively effect the FICO equation. We wrote on this a while back in somewhat hyperbolic fashion in a post 'Downgrading the American Consumer': http://www.marketfolly.com/2009/03/downgrading-american-consumers-credit...
Will be interesting to see how it plays out as there are definitely some major shifts taking place in the credit card industry.
This sucker is going down.
We can and will bounce back, but we've got to suck it up hard first.
Do we have the guts to take whats coming?
Fuck FICO, Fair Issaic, and all of these corrupt credit reporting puppet organizations.
R.I.P:
GDP = C + G + I + (X-M)
What's the only formula better than the gaussian copula function?
GDP = G
Hence the R.I.P. -- at this point in the game there's no difference between my equation and yours. A crazy world we livin' in, friend.
No Ho Ho Ho
So at their new rates of 29.99% Citi isn't increasing the amount of dollars people want to borrow? *sarcasm off* Black Friday is probably not going to be so black because most consumers are learning you need green to buy.
CNBC helps the consumer deleverage - see "Giving Thanks for CNBC"
http://outsidethe-cardboard-box.tumblr.com/post/256400826/giving-thanks-...
Cassandra Does Tokyo's Cassandra just calls it 'The Tab'. My favorite.
We will be paying it for a long, long, time. But hey, it was quite a party since 1980, wot?
Why is it banks are contracting credit? Is this due to balancing the books to meet capital requirements imposed after the results of the stress tests?
Anyone here know why a company would suddenly limit the amount of vacation time you can bank? Is it because they are looking to sell and clean up their debt obligations similar to how banks are cleaning up their obligations?
If I'm way off it's because I'm clueless to this kind of stuff and am trying out my jumping to conclusions map. Thanks for any feedback.
The way *i've* heard it, a company wants to limit vacation time you can bank because it gets progressively expensive to "pay" it as the years go by. For an extreme case, if you bank up 100 hours when you're 30 and you take the hours off when you're 50, with raises and inflation, it is more expensive for the company to fund your PTO. I don't have much of a finance background (why on Earth am I reading this blog? :) ) but I would assume that a change in policy like this is, yes, to clean up the books so that the company can project higher anticipated profit in the future. That or they are anticipating hyperinflation or something like that and want to be sure to lock in the price of your PTO right now.
"Zero Hedge wonders how long it takes before US voters finally have the epiphany that in Larry Summers, and his economic pawn "superior," they have accomplished the one most historic achievement of electing a fully 180-degree converted chameleon."
PLEASE GOD - LET IT BE BEFORE NEXT FALL!
Do you still honestly believe that having liars with an R behind their name is an improvement over liars with a D behind their name? If so, wanna buy a house? Guarantedd to go up, metaphorically speaking.
Well you have a point...up to a point.
The R's didn't live up to their supposed philosophy of being tightwads. The D's are living up to their philosophy of spending everything in sight and outa sight.
Between the two I would rather bet on those that at least CLAIM to want to rein in spending.
At least they kiss me before they stick it in.
No - I certainly do not. Either party is guaranteed to screw things up. The worst case scenario is now in place, where we have one party in control of both houses without credible counter-balance.
Tyler - you're just not understanding the master plan here man!
First, we get all kinds of new and undoubtedly creditworthy first time home buyers to re-inflate the housing market using tax credits for down payments and FHA funding for the rest. Then, we use our new accounting rules to keep FHA problems camouflaged for as long as possible. Eventually, we get housing prices up enough that people get that ownership society feeling again and mortgage everything to consume Chinese goods. China stays dumb and happy and keeps buying our debt. Lather, rinse, repeat...
OH WAIT - did we try this before?
I can't believe there are people who actually believe what you wrote. Back to where we were? Seriously? Bernanke, Geither/Obama and Paulson/Bush before them know far more about the economy than any poster on this board ever will. They have access to data, to modeling that you and I will never see. They are not stupid, regardless of how tempting it is to label them as such.
Occam's Razor suggests that the simplest explanation tends to be the best one. The simplest explanation for why they are doing what they are doing is that they have no better option. We can argue about how it might be better to stop spending, and it certainly would be in the long run, but if it results in the destruction of the empire today then there will be no long run...at least not for us. Pretend for a moment you are on a plane over the ocean that has just lost power. If you survive the crash, you're going to freeze to death in the water. Do you kill yourself while the plane is still airborn? Most people don't. That is why we're doing what we're doing. Every one of those people I mentioned knows what's ahead.. This has nothing to do with lathering, rinsing and repeating. The plane is going down. Right now, the object of the game is to keep it out of the sea as long as possible.
Put your head between your knees.
And kiss your ass goodbye!
"Life insurance pays off triple if you die on a business trip!"
http://www.youtube.com/watch?v=KJMtkaY6dlM
In other words, they are either corrupted or simply incompetent. And we are all f*ck*d in the end. What's the difference?
As Lord Acton used to say, about this or that UK Prime Minister: "Either he did not know, and is therefore blantantly incompetent and unfit to be Prime Minister. Or he did know, and is therefore blatantly corrupted and unfit to be Prime Minister".
The world economy, never a very stable thing to start with, will end up paying the bills. Meaning WE will end up paying the bill.
Are you suggesting that we should act like sheeps because the sheepard knows better than the sheep? This logic applies to dictatorships only! Collective opinion of millions is much better than a few experts'.
I agree, these are *not* stupid people. However you make an assumption that may not necessarily be correct -- that is that the Fed works in the interest of the American people.
I do not believe that is so. The Fed works for its own interest, any benefit (or injury) to the American public is secondary.
I attribute their behaviour to simple greed, lust for power and evil.
I have been observing Berspankme's economic prowess and forecasting insight for the past seven years. He is great at blowing bubbles and injecting synthetic government demand where real, organic demand is lacking. A skittle crapping unicorn flies around in his crystal ball. Geithner is simply a can-kicker doing his level best to insure that the financial institutions of this country can continue to siphon off an unwarranted excess of national wealth without contributing to the real economy. Charitably, I'll call Obama just confused.
Yet the stock market goes up nearly every day. Why?
If you were dropped from the sky - had no knowledge of what's happened over the past year or two - and just simply took a quick look at how the markets were priced today relative to the fundamentals, you would sell like there was no tomorrow.
Or so it would seem.
Why does the stock market go up every day? Well, duh. Haven't you ever heard of Dick Chaney's theorum? "Deficits don't matter". Especially when all of that money is going into the stock market and the derivatives market.
The corellary is that "Cash flow doesn't matter".
Except, of course, when they do. But this shell game can go on for a while longer. It's amazing that it has gone on for so long already.
Anybody think TPTB are keeping the market afloat for the sake of passing healthcare? By maintaining this market levitation, the banksters can continue their pillaging, and POTUS can keep whatever political capital he can retain to get healthcare passed. Maybe that's why ICE slammed the doors shut Nov 3 and 20...
There's one VERY big thing which people haven't mentioned.
The Banks have increased the APRs to the usurious rates of 25%+. This means that, even when there is available credit, more money is going to be going to the banks in paying off existing purchases.
I.e. you can kiss off the contribution of consumer spending towards GDP even further. Even more money is being sucked into the black hole on Wall Street than is going into helping this economy recover.
You can thank your incumbent for this. And yourself, if you voted for him/her.
The APR's represent book income accruing each day on balances. This "revenue" will never be collected.
People carrying balances now at 30% are never going to pay them off. It will be bad debt.
People not carrying balances at 6% 12% 18% 24% & 30% are paying off the balance every month so no income accrues.
This stock market is all Obama has now. He has so many negative things like the Residential real estate, then the banks, then unemployment rising, then commercial real estate and now, even the consumers can't get credit from credit card companies? I believe he(and Bernanke) will keep the stock market up till the bitter end. That is all he can hang his hat on. And the bitter end will happen when too many foreigners begin to tell us "forget you and your worthless money and printing presses" and cash in.
The stock market is a sideshow compared to the bond market which is the main event. The goals of the game are to save the big banks, minimize foreclosures going forward and somehow, someway jump start the economy. The stock market has been a beneficiary of easy money policy, but it is a serious mistake to believe that they are doing this to pump equities. They're not that important relative to the other things they're worrying about.
>>The goals of the game are to save the big banks, minimize foreclosures going forward and somehow, someway jump start the economy.
Those are OUR goals. The goals of this current crop of government "rulers" (they are no longer "representatives", by admission) is to protect the cabal of big-money interests and irreversibly seize control of the entire American economic apparatus while keeping the public ignorant, distracted, and frightened into submission. Bread and circus.
"If you want a picture of the future, imagine a boot stamping on a human face--for ever." -- Orwell, 1984
So, can you tell me what specific steps the Fed or Treasury or the Administration have taken to instill confidence in the bond market? I await your response so we can discuss how effective those steps might be.
One other question - is promoting new home ownership using tax credits for downpayments, with the FHA granting high LTV mortgages to owners with little or no real skin in the game, part of the effor to minimize foreclosures?
I thought the top 5% of income earners were responsible for ~40% of consumer spending and that consumer spending was ~60% (not 75%) of the economy. Assuming so, that's 24% of GDP in the hands of the wealthiest who have done not so bad over the past six months.
Most businesses require credit of some sort, but I fail to see why the typical person needs 5-6 digits of unsecured credit available to them. Personally, I view consumer credit contraction as a step in the right direction...drastically higher utilization rates, on the other hand, would indicate that people are unable to maintain their utilization by paying down their debt as the credit line falls, which would greatly increase defaults.
I tend to agree but I also think banks and cc companies are taking advantage of the situation. Heck, I have intentionally reduced my credit lines and pay cash for most things I buy.
It is like deflation. Everyone is scurrying around trying to reflate (keep the plane in the air) when deflation, though painful in the short term because it penalizes savers, is probably a good thing. Housing prices are probably still too high.
The market will do what the market will do. Our best bet is to hope for the best but prepare for the worst and ride it out.
One other point. The decline in credit utilization means less buying but who does that hurt? It hurts the Chinese the most because 95% of what we buy is made in China. That is the real danger - if we don't buy enough Chinese knockoffs the Chinese can't buy our treasuries and the government can't deficit spend and interest rates spike.
Every policy has unintended consequences. The most dire consequences seem to me to arise from trying to pump air into a balloon with too many holes.
ABC consumer confidence fell to -47 from -45 but it was reported after hours so it doesn't matter and German consumer confidence fell to 3.7 from 4.0 but who cares... not the bankster gamblers
One thing that might jump-start the CC motor: "Credit Card Interest Deduction" - yeah, just like mortgage interest, which is stupidly deductible (Canada does not do it, for instance). In the land of the casino economy, why not make credit card interest fully deductible up to your total earned income per year? Its an idea America can embrace!!
The Reagan Administration eliminated the deductability of credit card interest in the mid-1980's. It would seem to have been a disincentive to use credit cards but we all know what happened to credit card use in the susequent 25 years. I think jobs and jobs could help to jump start the CC motor and, of course, a banking system that is not the walking dead. But what is needed most is a change in preceived utility/desirabilty/necessity of debt. That kind of socioeconomic change could take a generation. The pendulum has swung.....
There were a couple of ominous warnings about big retail bankruptcies coming in Q1 yesterday.
"$4.7 trillion in Q2 2008, the number has plunged to $3.5 trillion"
this is totally irrelevant when the utilisation rate is less than 25%. Where is the credit contraction when people have the ability to increase the credit card debit by a factor of 3 from where we are now?
That is exactly the issue. The only way out of this mess is through vigorous economic growth. It is the only way to reduce unemployment and fix the real estate mortgage issues.
If other countries can do it, so can the US. It is matter of pursuing the right policies and incentives.
admin
http://invetrics.com
I disagree. Deflation is as much a part of the normal business cycle as inflation. All the policies seem designed to "reflate." Yes, by all means ... lets cure a debt problem with more debt. Lets restart the securitization process which brought down Bear and Lehman. In my mind the government wasted 700 Billion last year (and is still wasting money with bailouts and unpopular wars) instead keeping their powder dry to ride out the inevitable deflation cycle.
"All the policies SEEM designed to 'reflate'."
No. All the policies ARE IN FACT designed to reflate [asset values]. Timmy has said that this is a "liquidity problem." The Big Banks have "convinced" the Treasury and Fed that assets were correctly priced before the crash. The only problem is that there isn't enough money 'circulating' for people to bid them back up to pre-crash levels.
Of course the banks would have this opinion, it is the only way they can remain solvent because of their extreme leverage.
Once Hank and Bennie convinced W and Congress that the only way to save the whole can of beans was to save the big banks, and then started injecting cash into the system, it set us on an inevitable race to the bottom.
Consumers do not have the cash to reinflate assets at current dollar values. Therefore, destroy the dollar, reestablish our manufacturing base, then start raising rates to spur on 70's style inflation and get our consumers to pay off debts with cheaper dollars. (Do you think it's coincidence that congress passed a law to lock in credit card rates on prior purchases. The law takes effect in late February 2010.)
This is going to take years. It's going to hurt. But it will be extremely difficult to reverse course now that they have made the decision to solve the "liquidity problem.".
"the US consumer, which until recently accounted for 75% of America's GDP, and by implication, almost a third of world GDP. "
Sorry, Tyler, I have to call you out on that one. World GDP last year was about US$58Trillion, whereas US GDP stood at about $13-14 trillion. To say that the US consumer accounts for almost a third of world GDP is hyperbolic.
If you were trying to say that US GDP accounts for a third of world GDP, even that, too would be an exaggeration.
U.S. consumer expenditures in 2008 were something over $10 trillion in a $14+ trillion economy. That includes government health care expenditures on behalf of individuals. So even if you want to include all the health care expenditures, $10 trillion divided by $58 trillion world GDP is a little over 17%. Is 17% "almost a third"?
How about a retraction Tyler?
Meredith is probably pretty close on her numbers, which as the process maturates will help drive the savings rate and the "value store" trade for more individuals, corporations and sovereigns. I also rather suspect that Meredith's call on major consolidation in the consumer credit space is still on our horizon. So, even as consumers begin to feel the pinch and realize that available credit is in fact not the same as savings the major issuers will again be able to benefit from a some cut rate, heavily subsidized M & A activity.
Buy, buy, buy. To infinity and beyond! - Buzz Lightyear
The Fed has total consumer credit at $2.4T, thats about $8k per capita or $21k per household...BIG DEAL!. This INCLUDES credit cards, car loans, student loans, mobile home loans, boat loans...if the US system has debt problems, it is a Wall Street/corporate america problem, as usual, not the citizens.
To a family in the 40-50k income range, which is the American median, 20k in cc debt is a big deal. You're talking about $100 a week in interest payments just to tread water. You sure as hell don't want to go further in the hole.
The nearly 25% DROP in consumer credit lines since 2nd qtr 2008, it is laughable to believe that this christmas will be anything other than a debacle. I expect to see a LOT of foot traffic....going after those $25 HP Printers at Walmart and those $35 executive computer chairs...but other than other small heavily discounted items this will be known as BUSTMAS not Christmas! I have been forecasting a 3-5% DROP since this summer when a lot of these ANAL-ysts were laughably predicting a 1-3% increase in sales! My argument which is reinforced by Tylers post above is that the consumer is tapped out. The consumer represented over 2/3's of the our economy and represents 1/3 of the WORLD economy. We can NOT recover until JOBS are created and middle class jobs at that! Folks are jumping up and down going we are recovering...I CALL BULLSHIT! State and Federal Tax revenue is FALLING not rising! Unemployment is still RISING...how in the hell are we recovering? NABE>>>>= Idiots.
and where does the conversion from credit card debt to loans fit in?
CITI for example is calling all it's visa holders who are at their max if they don't want to change the credit line into a loan with cheaper interests.
The American economy needs needs to undergo a radical realignment that shifts our focus from consumer spending and re-orients us toward production and savings. It is a good thing that credit is contracting; I for one hope it will contract much further. My grandparents in the 1930's were embarrassed to have to incur debt to keep their business going-- debt they paid down once the economy improved in the next decade. My parents only borrowed to buy their primary residence, and only then when they could put more than 20% down. There is no iron law that says America is strongest when we consume beyond our means. Quite the contrary is in fact the case. Bring the Depression on. At the end of the day, we will be far stronger than if we continue to keep the current leaking ship afloat by the taxpayer support of profligate spending by government, business and consumer alike.
He was anyone seen Rosie's latest piece? He was on CNBC yesterday (with Santelli in stdio) giving Liesman another lesson in Econ 101 and market strategy...
Years from now, we will all be wondering how one idiot community organizer caused so much damage. The drones are all asleep.
Except that as so many have forgotten... the economy was already dead when the "community organizer" took office.
I will agree that the person who brought it down was an idiot though. And now the recovery will be in the shape of the person's name who brought it down. W.
It took the village idiot to bring our country from the high prosperity of the year 2000 to the state it is in now.
And anybody that thinks having another liar with an R after their name like that idiot Palin will fix this should invest in MBS at 100 cents on the dollar.
Not that a D after their name is much better, but at least the last president that had a D presided over relative prosperity. The guy with the R took us from that prosperity into the abyss...
Heh - the "high prosperity of the year 2000" brought to us by the Dot.Com bubble - which exploded just in time for Junior to take over the reigns in early 2001.
Look, Dubya was certainly no great shakes (to say the very least) - but please spare us the mythology of The Great Clinton Economy, which didn't even start to really get "great" until the bubble started growing in early '98.
Bubba signed off on both the repeal of Glass-Steagall AND the Commodity Futures Modrnization Act 2000 on his way out the door. These two fiasco pieces of legislative nonsense set up the whole securitization and derivatives game for the New Century.
I still believe Bubba had to agree to pay off the Repubs in the Senate for not convicting him on the impeachment charge.
Whatever, there is blood on the government's hands.....and splashed all over the walls of the Capitol.
You're right.
Thanks for reminding me... W J Clinton was the a$$hole who signed the GLBA.
Duba was like a little kid that got to drive a tractor while sitting on his dad's lap. I'm not saying he didn't do anything wrong either, he put that sum' bitch thru the barn.
They are all filth R, D whatever. That has been established.
somofabitch.....
wow.
Tyler, how did you come up with your assertion that consumer spending is 75% of GDP when the actual number has been in the 69-70% range? The author of the following piece argues that the often quoted 70% number is misleading because it includes government expenditures on health care on behalf of individuals, i.e. Medicare/Medicaid.
http://www.businessweek.com/the_thread/economicsunbound/archives/2009/08...
There is a link in that BW piece to the government GDP statistics, which show that consumer expenditures (with healthcare included) have never approached 75% of GDP.
The numbers are bad enough without inflating them.
It's like a slow-motion train wreck. Interesting to watch, until you notice the whole thing is sloooooooowly headed straight at you. And it has a lot of sharp edges.
Faber: The capitalistic system 'as we know it today' will collapse.
Mish: Agreed. The credit based fiat model of fractional reserve lending and fabrication of money out of thin air has reached its pinnacle. See Fiat World Mathematical Model for more details. Global wage arbitrage and outsourcing are icing on the cake. Mathematically it is impossible for the current Ponzi scheme of ever increasing levels of debt to survive. When and how it finally blows up is the only issue.
http://tinyurl.com/ykly6te
Zero Hedge wonders how long it takes before US voters finally have the epiphany that in Larry Summers, and his economic pawn "superior," they have accomplished the one most historic achievement of electing a fully 180-degree converted chameleon.
I DO NOT BELIEVE IN GENERAL IN CONSPIRACY STUFF. BUT WHILE CLINTON WAS IN THE RACE I SAW A BILTABERG VIDEO THAT CLAIMED THE OLIGARCHY HAD PICKED OBAMA (AS THE ANTI BUSH- BLACK, WITH MUSLIM MIDDLE NAME) TO TALK HOPE AND REFORM, KEEP PEOPLE FROM RIOTING, ENSURE THE OLD SYSTEM WAS REFLATED, AND GET THEIR WEALTH BACK. WELL I HATE TO SAY THIS, BUT EACH AND EVERY DAY THAT VIDEO PROVES TO BE MORE AN MORE TRUE IN THE PREDICTIONS IT MADE.
I CAME TO THE CONCLUSION OBAMA WAS A FAKE VERY EARLY. ALL IT TOOK WAS A LOOK AT WHO HE WAS APPOINTING (GEITNER AND SUMMERS) AND HOW MANY WALL STREET TYPES WERE IN THE WHITE HOUSE. YOU NEVER LOOK AT WHAT THEY SAY ONLY WHAT THEY DO. THE CONFIRMATION CAME WHEN HE LETS CONGRESS AND SENATE WRITE THE BILLS. THIS ENSURES MAXIMAL GUTTING BY SPECIAL INTEREST GROUPS. NOW HE IS SENDING MORE FOLKS INTO AFGHANISTAN (FOREIGN WARS FOR BROKE COUNTRIES ALWAYS ENDS BADLY).
BERNAKE PLAN IS TO CAUSE INFLATION AND COLLAPSE DOLLAR. HE DOESN'T GIVE A SHIT ABOUT ANYBODY EXCEPT BANKING LOBBY. IGNORE WHAT HE SAYS, LOOK AT WHAT HE DOES. HE IS MAKING HIMSELF RICH GIVING THEM WHAT THEY WANT AND WILL GET THAT 20/MIL YEAR DO NOTHING JOB FOR IT.
Hey, buddy, quit swinging the CAPS LOCK around here you could hurt someone.
Yea, swing that shit at Bernake and the other looters
I look at this entry, and I don't see credit contraction. I see a contraction of unused (even in boom times) credit lines. True, the increased utilization rate of previously used lines is going up (as home equity becomes less available?) and that might intersect with declining unused lines. But right now, all that seems to me obvious is that banks are preparing for that possible eventuality.
Far from being a negative, it is a wonderfully positive sign for the US. Look, the commercialization of everything got way out of hand. Witness the baroque Halloween parties, the lunatic Christmases, and every month some holiday or occasion that requires spending a bunch of cash. It all has to come down because, frankly, we're exhausted from it. Consumerism is not a good in itself, despite what the marketers want us to believe. I am thoroughly convinced that these changes are for the best and that the fear is only fear of the unknown and nothing more. We crash, we crash. Get over yourselves. It was all make-believe fantasy bullcrap anyways: "The Lexus Holiday Event" you know, the commercial with the guy buying the woman the Lexus SUV with the red bow on it? That was probably the most ridiculously overblown, decandent, and cynical suggested holiday purchase I have ever seen. He must have been a banker, because I sure as hell couldn't afford to impulse buy a Lexus SUV. We took consumerism so far beyond all reasonable boundaries and turned our culture into a crass, meaningless husk. It's time to get back down to earth.
*claps loudly*
I also love the commercials that are like... "show her you love her with a ten thousand dollar diamond ring this Christmas." Every kiss begins with Kay.
BARF
I've had a BAC cc for years, over time limit was raised to $39k. Got a letter a few months back that they were cutting limit to $19k because it was unused. (Averaged 2500/month, occasionally up to near 4k, paid in full each month, credit score = 800.)
Not sure of their true motivation, but if it was my business, I would not have cut my limit unless I had to.
If it was my business, I would have cut unused credit limits on home equity loans and credit cards a long time ago. They are subject to adverse selection. Under what circumstances would you get anywhere near that $39K credit limit if you've never come close to it before or even carried a balance? Probably only in a dire emergency: if you lost your job, had big medical expenses that insurance didn't cover, etc. Credit scores measure somebody's willingness to pay their bills in the past, not their ability to pay their bills now.
It's the same story with unused credit lines banks have outstanding with corporate customers. The banks get paid a pittance for making the credit lines available, then in a crunch the companies in the worst shape pull down their unused credit lines.
As David Koo of Nomura noted in his presentation that was posted at ZH yesterday, for every $1 of capital lost on bad loans, banks have to reduce their loans outstanding by roughly $12.50. If they know they're sitting on a lot of bad loans with losses to be realized over at least the next several quarters, they have got to cut not only loans outstanding but exposure via open credit lines as well.
Sharts, excellent argument, but I am too cynical to think that the proactive, common sense risk management you suggest is even a remote possibility from these banks.
Shhushh!
I have 3 lines totalling nearly 100K at a .99 or Zero rate for 9 months that I am going to use to triple short gold, the DIA, and the buy the DXY very soon. Don't blow it or me.
[quote]the US consumer, which until recently accounted for 75% of America's GDP, and by implication, almost a third of world GDP[/quote]
Just a minute, US GDP is a bit less than a quarter of world GDP, so I make the US consumer approx 18%?
If the Pavlovian trained consumer simply quit buying cheap crap from China for 90 days, the entire Ponzi scheme of international and global trade would collapse overnight. That is what they fear, that is why they have got to reinflate the bubble, that is why deflation is unacceptable. These guys are running scared and have lost control of the situation. The business press (with the exception of a few sites like this) is once more doing their best to sell the good-times-are-here-again-go-buy-some-more-crap illusion to the masses. This X-Mas will be a key indicator to see if the masses believe the propaganda and if the masses are capable of finding a credit card that isn't maxed out to go carry out their mission.
The whole systemic failure of greed and corruption coupled with a collapse of materialistic consumers who expect to consume more and more resources(2004;4.6%population@33% of worldwide consumption: WRI), will hopefully one day come to and end. Same old story, everybody wants a piece of the pie, and something for nothing.Time to pull the pants up, tie the shoe laces, stop watching mr/ms idol on the one eyed cyclops; think about adding positives to other people, and the planet.Cancelled my credit card 1 1/2 years ago.
I haven't had any credit limits cut, but, the mail offers I used to get almost every day have completely stopped coming.
These charts would be much more useful if they were done on a per capita basis.
How does America get an epiphany if the MSM refuses to report it?
“...the liberal party has now been forced to...pander… exclusively to the top percentile of American society…”
Come again? Is this some new usage of the word “pandering” with which I am unfamiliar? Maybe you use “pander” in the sense of a pimp for a dominatrix who will beat the crap out of her clients.
Obama and the Left are going to tax the hell out of the upper income earners until they stop earning money! That will teach those bastards to be earning so much! Those damn winners in life's lottery!