Guest Post: The “Recovery” In Consumer Loans Isn’t Real

Tyler Durden's picture

Submitted by Bud Conrad of Casey Research

The amount of loans being provided by our banking system is a good
reflector of the strength of our economy. Below is a big-picture view
that shows the total loans in the U.S. as the Fed reports in its H.8
each week. We can see that loans outstanding declined at a rapid rate
at the beginning of the current great recession, but there seems to be a
recovery in the little jump at the end of the chart, as highlighted by
the two small black arrows. A little closer look shows that the
Consumer Loans segment is the source of the optimism that we see in the

The Consumer Loans figure shows an impossible jump of $360 billion in a
one-time change in April 2010, in the dashed blue line. Just
graphically you can see that the jump is not consistent with history.
The correct conclusion is that consumers didn’t go on a $360 billion
borrowing binge in one month. The change was from how the Fed reported
the data. In other words, the “green shoot” of apparent loan growth in
the first chart is bogus. It came from a fluke in the data that
couldn’t have happened, and so it didn’t happen. We don’t have evidence
of recovery in loans but rather continuing their decline since the
beginning of this recession in 2008.

To get a consistent view, I adjusted the data from April forward to
remove the jump to produce the gradually continuing decline as shown in
the solid red line. Without the one-time change in the data from the
Fed, the loans at banks have continued to decline.

When combined into the big picture, the result is that the private
sector is still deleveraging its outstanding balance of loans.

The rate of decline is still at the biggest level since World War II:

My interpretation is that the private economy is still in a downturn,
because the Federal Reserve numbers when adjusted, as I provide here,
are still showing we are in the worst decline on record. Not shown here
is that government debt has been soaring, contributing to other
positive economic numbers but leaving us with a debt burden for the
future. I think the economy is weaker than the general consensus of
economic reporters, because they haven’t looked as closely at what is
inside the numbers.

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Bearster's picture

It's the debt that is going to destroy the dollar, not the quantity of dollars...

Sudden Debt's picture

I always thought it was going to be cholesterol...

tgatliff's picture

Unsustainable debt is deflationary simply because when it collapses, the number of dollars in the system contracts as well.... That is why debt collapse begets more debt collapse.


That is also the argument that the FED is making.  Their argument is that they are simply replacing the amount of debt collapse and not hyper-inflating.  What they are forgetting, in my opinion, is that they are also redistributing the wealth in the process which deteriates business fundamentals even further.


In short... In my little opinion, debt collapse is a great thing for the dollar because 

A) It wipes malinvestment and restores fundamental business practices.

B) It strengthens the dollar because it reduces the overall money supply.

Sean7k's picture

The problem with the QE replaces shadow banking liability argument is this: you are using new dollars to replace value that was once there, but is no longer. The dollars are not being used to buy value- they are being used to buy toxic debt that will never have a value.

This continues to increase the monetary supply while decreasing the value of the goods it is valued against. The debasement is accelerated. Probably more so as the bankers segue out of dollars and into products that will not be affected by the dollar collapse.

While I agree the redistribution happens as bankers are bailed out and the taxpayer absorbs the responsibility for these debts, it is not the whole story.

This is the evil being perpetrated by the Bernank and the great majority of the people will have no idea, until someone says to the dollar, "no thanks". 

LowProfile's picture

Debt = Dollar, they are the same thing, and too much too fast in the wrong places for too long is what has already destroyed it...  It's just in it's death throes.

snowball777's picture

Yup, real recoveries show growth in that blue section at the bottom...and have a declining UE rate as a result.

101 years and counting's picture

after 3+ years, can we stop calling it a recession, or "The Great Recession" and give it the rightful name:  The Greatest Depression.

Sudden Debt's picture

Why give it 1 name?

How woudl FOX call it?

2007: Season 1: The House That Kept On Giving

2008: Season 2: The House That Stopped Giving

2009: Season 3: The House That took Revenge

2010: Season 4: The Paperless House

2011: Season 5: ...

snowball777's picture

...The House We Once Lived In

andybev01's picture

My guess is that in the next century if you refer to 'the big one' everyone will know wat you are talking about.

WineSorbet's picture

The amount of loans being provided by our banking system is a good reflector of the strength of our economy.


So according to that premise, our economy was incredibly strong during the housing boom.  Your opening argument is true if and only if those numerous loans are fundamentally sound.  If not, well, we all know what happened...

RockyRacoon's picture

My thoughts exactly.  

Debt = economic strength?

In what alternate universe?

Ragnarok's picture

What was the method used to adjust the numbers? 

RockyRacoon's picture

I'd like to know the same thing.  One cannot remove the "bump" without giving some relevance to the contorted bookkeeping that prompted it.   What was the nature of the convoluted accounting?

Is it student loans as outlined below?

Seasmoke's picture

since the banks have never really loaned money since 2008 collapse, they should have never bailed them out....we would all be so much better off today

Sudden Debt's picture

Isn't less debt good?


skipjack's picture

Pathetic.  You call that analysis ?


The jump is clearly in student loans, hence the one time charge and the ongoing "recovery" in consumer loans.

financeguru500's picture


You are correct. There has been a significant pickup in student loans since around that time. Note that at that time, the government took over control of student loans. What does that mean? It means the government decides how many more students are allowed to receive loans and what cost.

I personally have been attending college since fall of 2007. I have noticed a huge increase in the amount of students at my local college starting at around the beginning of 2010. The real question we should ask is, how can all these people afford to go to college? Yeah some parents pay for it, but most kids are taking out loans. With no job prospects after college what is going to happen?

It is scary to think about. BTW, I think it should be illegal to provide loans for students who major in General business degrees. They are the majority of students who come out of college and end up working at walmart for $7.25 an hour. Good luck paying back your $40,000 in loans lol.

waylon153's picture

BTW, I think it should be illegal to provide loans for students who major in General business degrees.

I received that degree 10 years ago from a state school and I can say that a BBA in GBA = Sales.  My class all went into mortgages <dramatic pause>, and, well, you know the rest of the story. 

And the $20K in student loans?  At 3.25% it's not causing any pain, but it's still debt, which I absolutely hate.  Ahh, such is the wisdom of adulthood.

I would offer my opinion and say I think it should be illegal to provide loans for students who major in Keynesian economics.  All that equals is a government job or teaching, both an anathema to society....

Jason T's picture

Triple Curve.. those are the financial aggregates.  The monetary aggregates are exploding while the physical economy is declining.   This has yeilded inflation and negative real rates of return.  Banks are loaded with reserves ready to lend.  If it gets to the point wher borrowing dollars to speculate in say gold, silver, stocks or anything, thats when its game over for the US$.  Madness begins. Rudolf Havenstein policy.   

thepigman's picture

The author is correct. We have never

been able to recover without adding

more debt through loan growth, but

now debt is so high, it is virtually impossible

to add any more "net" debt. The banksters

are pushing on a string and will NEVER

recover their former debt based glory.

This is also why the bernank has to feed

them every day with stock market gains.

It is a catastrophe...they are still failing.

thepigman's picture

And now you know the dirty secret

and why the bernank is flim flamming.

It ain't because things are good.

Michael's picture

I have a name for this. It's called Debt Saturation.

topcallingtroll's picture

Looks like it is the stagflation monster we will have to fear most, bastard spawn of daddy deflation and that thieving whore inflation

Seasmoke's picture

truly the WORSE of all the flations

Rogerwilco's picture

Ah yes, the good ol' days, when I'd get pre-approved, "sign here" $100K SBA loans from Citi in my business mail, and $300K refi offer checks from Countrywide at my home.

lynnybee's picture

Banks are still not loaning........... how about, "No one wants to borrow !! & no one wants to be involved with banks ever again if they don't have to be !!! "  ......... After this fiasco I'd rather drive a junk car & live in an apartment before I ever SIGNED MY NAME ON ANY DOTTED LINE WITH A BANKING INSTITUTION ! 

Besides, as you get older, I thought the name of the game was to have all your stuff paid off / paid in full so you could retire with minimum expenses .   We can't all be debt-slaves our whole lives ......... or can we ?   Banks need to be the way they were when I was young ..........a public service / public utility where you simply walked in, added money to your savings account & earned interest on your savings .   ........ thank you, ROBERT RUBIN, for your contribution to "banking" , which now has a dirty name attached to it ! ....... I'm sorry, I can't help it ... as my father used to say .......... what a horses ass.

haskelslocal's picture

Quite obvious. Loans across the spectrum exploded since 2000. It was called a bubble. Bubbles are supposed to be bad. Pop it. We did. Credit needs and will contract accordingly. But tell the people something else to keep them opptimistic about the economy.

Thanks for helping me see that what should be happening is happening and that the mysterious "recovery to an insane bubble" is only for show.

Michael's picture

The Fed specializes in illusions. As does the federal government with it's manipulated numbers. I think it has something to do with creating that subjective thing called confidence. Objective reality though, usually has a way of rearing its ugly head.

davepowers's picture

Where in that, if anywhere, are loans to hedge funds and other groups speculating in assets(commodities/stocks)?

If it is 'other' have such loans really been flat during the run up in commodity/stock prices?

Could interbank borrowing for such purposes or another big category be excluded from the FED data or the charts above?

lynnybee's picture

all this "illusion" & "confidence" stuff is going to come crashing down on OUR heads !    I do not know how to plant or harvest anything .

the grateful unemployed's picture

Mom who is 90 needed to replace her bathtub with a shower, and some safety features, and we met with the contractor from the local home improvement center. I thought it was way too much, but they promised to do the work in one day (took them 2 1/2) and they offered her a sweetheart loan, two years, and she only pays the minimum monthly and the balance at the finish. She was ready to pay cash. Its not only automakers doing zero APR, its everyone. Its not about selling you product, its about selling your financing. (I said now Mom take the money you need to pay off this bill in two years and buy gold. The value will double and you'll be paying half price, and if the price of everything goes up, double good. The sweetheart consumer loan will look pretty good.


thepigman's picture

Just remember...all recoveries of the

last 30 years have been accomplished

by growing private debt.  Goobermint

took up the slack by adding public debt for

the last two years and lining the bankster

pockets with the QE flim flam. Bernank

can't inflate his way out beyond a

smallish degree because inflation ultimately kills

the banking franchise, and who does

bernank work for? The banking franchise.

So what's the alternative? Stasis...

featuring low growth and high unemployment

as far as the eye can see. It's OVER.....

they just won't tell you and never will.



thepigman's picture

And under a decade long stasis like

Japan, stocks aren't worth 50% of

what they're selling for.  Let the

banksters keep them....they have no

one to sell to.

RockyRacoon's picture

You can edit your own comments just so long as they have not had a reply.

Might save you some of that multi-post work.

the grateful unemployed's picture

markets that go up on no volume present this problem don't they? And companies buying their own stock, elevates the price, until one day you own all your public shares and they are hugely overvalued. ooops. government backstopping the stock market only creates more distortions. eventually you're right, there is no one to sell to except Uncle Ben, and then they monetize the speculators profits by loading their crappy paper off on the taxpayer?? wait a minute, its not supposed to happen that way.

Buttcathead's picture

duh....   it's all fake.  90% of us are broke as hell.  Of that 90% dag gone 30% of us aints got no job.  I am sure that The bernack is try'n to kill us. 

Trimmed Hedge's picture

But the sheep still love their mortgages, eh?


Real estate still has a loooong way down to go....

Diogenes's picture

Since when is debt a sign of strength?

That chart looks like someone dying of a fever, the fever broke at the end of the chart, but it has a long way to go down before the patient is healthy.

JustACitizen's picture

Honestly - we all know that the banks are not lending as they were - but that is not necessarily a bad thing. They have demonstrated really special skills at choosing good loans to make (thank you Fair Isaac the unsung accomplice to the moron ratings firms). The problem is that they are "investing" instead - in oil, food commodities, etc. They love these things - they promise profits - they are liquid and they will break our society. But, no speculation has no impact...uh huh...

tom's picture

I'm afraid Bud got a bit confused and spent his time dismissing a myth that nobody believed in.

The data he is presenting is not total lending, only total bank lending, excluding off-balance-sheet securitized loans. The Fed indeed revised its counting and reclassified more than $300b of credit card debt as bank lending, which had been considered off-balance-sheet. The Fed explains this itself in its notes to H.8. Nobody ever said that this $300b increase in bank lending was an increase in total lending. Everybody who follows this stuff knows that it was merely a reclassification from "shadow banking" to banking.

The real myth is that consumer loans have started to slightly recover recently, which is true only if one counts student loans as consumer loans and excludes mortgage loans and equity loans. If you exclude housing/equity, then student loans are growing faster than other kinds of consumer loans are shrinking.