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The Primary Source Of January's Surprising Boost To Consumer Credit? Why, The US Government Of Course

Tyler Durden's picture


Today, the market spiked in the last hour of trading after it was announced that total consumer credit increased for the first time in a year (not all credit, mind you, just car loans; consumers are still eagerly paying down their credit cards). And who was the source for this generosity you may ask? Why, the US Government of course. Not only that, but Non-Seasonally Adjusted Consumer credit was actually down by $4 billion. But let the government have its smoothing fun. On a non-seasonally adjusted basis, consumer credit has declined by $108 billion in the past 12 months. What may be surprising, is that were one to strip away the contribution from the Federal Government of $78 billion, the decline would have been almost double, or $187 billion. Furthermore, in January, NSA consumer credit would have declined by $14 billion had it not been for the... wait for it... Federal Government, which sourced $10.4 billion in new consumer credit. So here is what happens in case you haven't figured it out already: the government takes taxpayer money, and lends it out to all sorts of destitutes at zero % interest, who have to keep up with the Joneses at all costs, and even though can not afford to put down any equity, must buy a new car every 6 months (even though they have likely not made a mortgage payment in about a year... not to worry, Uncle Sam is footing that too via the Federal Reserve and Fannie and Freddie), and when the news of the government's generosity hits the market, and the spin is that Americans are again confident enough to borrow, the few SPARC machines left trading do whatever Liberty 33 tells them to, and bump up the total capitalization of the market by about $20 billion, putting money straight into the pockets of Goldman Sachs and other recent bailoutees, who without doubt deserved a $70 billion bonus season in 2009. And now you know where your money goes to.


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Fri, 03/05/2010 - 17:57 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

6M mortgages in the country are in default, at 1500 or so a piece each month, that is 9B a month of mostly government supported stimulus.

Fri, 03/05/2010 - 19:18 | Link to Comment deadhead
deadhead's picture

i used to think things were weird and surreal back in the 70s when i was dropping i'm sober and have been for many years and the shit i'm seeing is even weirder.

keep posting on mortgages/housing as you know your stuff and many of us look forward to it.  the irony of bernanke's reflation attempts is that it has failed to inflate what he may want most, the housing stock.  man, is history going to blister him or what....

Fri, 03/05/2010 - 19:35 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

History will not be kind to Zimbabwe Ben, the disaster he has brought on this country is going to last for decades.

He is totally ignorant of the housing market, he should have known that it couldn't be saved.  The only way he could have saved it is by having the Fed actually loan money to borrowers, using New Century's underwriting guidelines circa 2006.

Buying MBS had almost no effect on the housing market.  It maybe stopped 2% HPI decline.  He had a much bigger impact on putting money into people's pockets via refis, but that was kind of a waste, he would have been much better off monetizing treasuries that were created specifically for stimulus jobs like digging ditches.  At least we would have had more ditches.

The impact on purchases between a 5% rate and a 6% rate is small.

The FTHB tax credit had some effect at first.

The biggest impact was supply control by keeping REOs off the market.  But that can't last much longer.

The whole thing is a disaster, and we are going to be paying for it for years to come.

Sat, 03/06/2010 - 08:59 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Conventional wisdom in the real estate trenches is that the tax credit has exhausted itself as a driver of new sales.  There is still fundamental demand here, in terms of household formation, marriage, birth, old age, death, so there is activity of a sort, but even those factors can be insufficient to overcome the economic obstacles which are formidable.  

Fri, 03/05/2010 - 18:08 | Link to Comment Fritz
Fritz's picture

Todays equity ramp smelled like burnt put premium.




Fri, 03/05/2010 - 18:20 | Link to Comment rubearish10
rubearish10's picture

Vix below 17? Something bad "could happen" I suppose but I suspect the move down will be shallow again. What we really need to see is conviction sellers,,,,,but OH THAT TRAIN!

Fri, 03/05/2010 - 18:06 | Link to Comment rubearish10
rubearish10's picture

Great observation and supporting data. Ok, now what makes "smart" money sell into this data under the assumption it's the bailoutees making all the money. Well, let me answerer this myself,,,,no one jumps in front of a Freight Train, right!

Does anyone have a better approach other than just wait 'til the damn breaks??

Fri, 03/05/2010 - 18:11 | Link to Comment Fritz
Fritz's picture

Actually, I stepped in front of the train at the close.

If the trades go bad, which Government agency do I call to refund my loss?

Fri, 03/05/2010 - 18:18 | Link to Comment rubearish10
rubearish10's picture

I've done that myself as well my friend. Thanks goodness my mini hedge fund position is limiting the pain. Underperforming, yes but prepared for Credit Crunch Meltdown II.

Fri, 03/05/2010 - 19:04 | Link to Comment Fish Gone Bad
Fish Gone Bad's picture

I gave some thought to trying to catch a falling knife today.  As there is still more liquidity out there, I am thinking we have another couple weeks of ramp-up to go.

Fri, 03/05/2010 - 19:16 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

Wait until the MBS buying is over with at the end of the month.

Fri, 03/05/2010 - 19:19 | Link to Comment deadhead
deadhead's picture

i imagine some u.s. common equities are being distributed in light of that lol!

on the other hand, seems like the market is not looking 4 to 6 mos down the road as it can't get past a 15 min chart.

Fri, 03/05/2010 - 19:24 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

I'm telling you, the loss of that liquidity is gonna make a difference.

Not only will there be 50B a month less liquidity coming out of the Fed (current run rate), but someone is gonna have to step up and cough up that 50B a month to buy MBS issuance.  That is a net loss of 100B a month in liquidity.

Not to mention MBS prices will go down, which will mean less collateral to borrow against.

What I am worried about is my gold and commodity positions.  Less dollars floating around is not good for them.

Fri, 03/05/2010 - 20:20 | Link to Comment rubearish10
rubearish10's picture

Managing the gold play is the key. Have to have some skin in the game but must also have dry powder. I'm trying a 70% position in Gold/Silver along with long dated OTM calls as well. Should we see the metals crater from the broken carry, you buy it up in the high $800 to low 900's. It would work nicely if your current AVP is south of $1050. Good luck!

Sat, 03/06/2010 - 09:01 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

agree, but who " gonna have to step up and cough up that 50B a month to buy MBS issuance." I say no one really. Back door QE will be next.  "Encourage" banks to use some of their reserves to buy MBS. 

Fri, 03/05/2010 - 19:18 | Link to Comment rubearish10
rubearish10's picture

Yeah perhaps to 1145 Spot S&P. That would top it out.

Sat, 03/06/2010 - 12:02 | Link to Comment Pedro
Pedro's picture

The talking heads on TV think they are so bold in predicting a financial meltdown 5-10 years down the road.  It know it is hard to predict, especially when Ben is manipulating the market, but come on.  Is anybody going to put any speculative money for a crash this year?

Fri, 03/05/2010 - 18:18 | Link to Comment seventree
seventree's picture

Just minutes ago I spotted this statement in a Google News exerpt, and thought, irony is truly dead...

"In an encouraging sign for the economy, US consumers increased their debt in January for the first time in a year."

From now on I'm only going to read The Onion, where howling absurdity is intentional. (And ZH of course.)

Fri, 03/05/2010 - 18:46 | Link to Comment primus
primus's picture

There was an similarly titled pump piece about oil breaking $80 per bbl a few weeks back.

As JHK put it "Just how much can a nation NOT get it?"

Fri, 03/05/2010 - 19:14 | Link to Comment Anonymous
Fri, 03/05/2010 - 18:19 | Link to Comment Anonymouse
Anonymouse's picture

What consumer lending does the Federal Government do?  Does this mean lending by GMAC, Fannie, and Freddie?

Fri, 03/05/2010 - 18:21 | Link to Comment Don Smith
Don Smith's picture

Can someone tell me what "consumer credit" the Fed has?  Is that the MBS they've been buying?  Tyler references car loans.  I'm not aware of a Federal Reserve Automobile Purchase Plan Absolving Credit Institutions Not Originating (FRAPPACINO) program.

Fri, 03/05/2010 - 18:46 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

Good question.  I sure don't know. CC is usually non-mortgage, so it wouldn't be the Fed's MBS purchases.

Anyone know?

Fri, 03/05/2010 - 18:53 | Link to Comment Mrmojorisin515
Mrmojorisin515's picture

The government owns general motors, so when GM fiances a car it is really the government, on a side note, my brother just bought a toyota two weeks back, and a woman there was buying a prius through fiancing, but to get it she needed to show proof of her getting so much every month in child support!!!!!!!!  Yep the recovery is here, if the bankers aren't going to jump out any high windows, i think i just might soon

Fri, 03/05/2010 - 18:23 | Link to Comment Anonymous
Fri, 03/05/2010 - 18:27 | Link to Comment Anonymous
Fri, 03/05/2010 - 18:32 | Link to Comment Waterfallsparkles
Waterfallsparkles's picture

Think I can sue the FED for the loses on my Shorts?  Intentional interfeerence with the Market and Market Manipulation?

Fri, 03/05/2010 - 18:34 | Link to Comment Crummy
Crummy's picture

Debt is wealth, currency is commodity, theft is trade.

Sat, 03/06/2010 - 03:15 | Link to Comment Anonymous
Fri, 03/05/2010 - 18:34 | Link to Comment Waterfallsparkles
Waterfallsparkles's picture

I think most of the Consumer Credit was Student Loans.  Probably for then next semester.

Fri, 03/05/2010 - 18:43 | Link to Comment Anonymous
Fri, 03/05/2010 - 18:49 | Link to Comment tmosley
tmosley's picture

Hey, I've got bad credit, can I get me one o dem dar 0% APR credit cards from da gubmint?

I feel like shrugging.

Fri, 03/05/2010 - 19:20 | Link to Comment Anonymous
Fri, 03/05/2010 - 19:30 | Link to Comment seventree
seventree's picture

Sure, if you promise to keep charging and never pay the balance down.

Fri, 03/05/2010 - 19:02 | Link to Comment Oso
Oso's picture

goddamn, i love this site. 

Fri, 03/05/2010 - 19:34 | Link to Comment bmwmc
bmwmc's picture

I'm so sick of you nattering nabobs of negativity.   All I know is this market goes up no matter how bad the real market is.  Thanks Ben and I agree with you...F'Them.  Buy Buy buy!

Fri, 03/05/2010 - 20:15 | Link to Comment rubearish10
rubearish10's picture

This is good capitulation. Flush out the shorts and reverse, yeah!

Fri, 03/05/2010 - 19:37 | Link to Comment Ghostbusters
Ghostbusters's picture

Dear Federal Government,

How can a consumer credit driven mega-recession be corrected as Rosie says, "the U.S. economy is currently about 12 million jobs shy of being at full employment and it will likely take 5 to 10 years to get back to the prior pre-recession peak in the employment-population ratio?" 

It is laughable that the most "powerful" country in the world can spew such lies to an apathetic public that is more interested in American Idol than the value of their dollar.  Anyone checked the strucuted debt-gdp ratio in a while?  The deleveraging will continue and no amout of government rhetoric can correct the inevitable mathematical story which tells something far different than recovery.  Housing can not recover until unemployment recovers, unemployment can not truly recover until the bad debt is purged, and we continue to pretend that bad debt doesnt exist(mark to "make up your own model")?  Are you going to spend more now that you know your house is worth less, you get paid less per unit of output, and that your bank and government cooperate in screwing you out of your hard-earned wages?  It is still America though, so buy guns and alcohol but stay away from housing and equities for another 10 years, minimum.

Is there anyone with integrity left in the US Gov't who may help save a once in/credible nation?  I think of WWII Veterans, Lake Placid Olympic Hockey, and the Pledge of Allegiance(that part about liberty and justice).  The current state of affairs leaves much to be desired in the world's most influential nation and our leaders seem content to kick the F'in can as far down the road as possible, so hopefully people will forget about the can and go back to Wal-Mart and start spending again? Ha.

I don't know about the US Fed Gov't but we're looking out for the return of Slimer. 

God Bless the United States of America and God save us all!

There is one thing certain in financial markets and that is uncertainty. 

Good luck, we're going to need it.

Fri, 03/05/2010 - 19:40 | Link to Comment EconomicDisconnect
EconomicDisconnect's picture

I am just waitinf for DOW 14k and S&P 1500 so the game will finally be up.  Stocks back at all time highs with unemployment at 10%, states going bust left and right, and earnings far below prior years.  I think they may get too cute by half and this could happen.

Fri, 03/05/2010 - 20:14 | Link to Comment rubearish10
rubearish10's picture

I'm afraid the likelihood of those highs is N.I.L/R.I.P.

Fri, 03/05/2010 - 22:05 | Link to Comment pooplagrande
pooplagrande's picture I getting tired of the US Gov taking my hard earned cash and flowing to a bunch of fucking losers. But what can I do about it? Post on ZH! Yeah! Take that Obama & Co.!



Fri, 03/05/2010 - 22:17 | Link to Comment Cursive
Cursive's picture

This post says it all, TD.  Keep documenting the Millennial Depression and end of Cowboy Capitalism.

Fri, 03/05/2010 - 23:09 | Link to Comment Anonymous
Sat, 03/06/2010 - 00:19 | Link to Comment Anonymous
Sat, 03/06/2010 - 10:48 | Link to Comment RicardoM from T...
RicardoM from Temecula CA's picture

Thank-you Tyler. Efficient markets are not necessarily rational. Even IF companies were hiring, it would not matter long-run. It is waaaay too easy to buy a house or a car. The rub is that it is a lot harder to pay for it in after tax dollars. It will be even harder if we ever get to "normalization" of monetary policy. The retards buying stocks are creating an unsustainable bubble. We are in the midst of yet another goofy, Fed induced, loony-bin pile of boom and bust cycle bubble. I want real prosperity, not smoke and mirrors. Thank-you, Tyler, for pointing out where our money really goes once you remove the smoke and mirrors.

Sun, 03/07/2010 - 13:58 | Link to Comment Rick64
Rick64's picture

 I was trading the ES and about 1:30 CT 03/05/10 it seemed as though they weren't going to allow any significant downward movement. The buys at ask were coming in at 3-5 times the contracts at bid everytime the T/A showed weekness. Do this a few times and traders know better than to short.

 Whereas mon.-thurs. the T/A worked normally. Also at 7:30 a.m. CT  34,691 contracts were bought. Unusual premarket activity. 

Fri, 04/16/2010 - 08:37 | Link to Comment mark456
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