Consumer Credit Unexpectedly Fell In August By Most In Over A Year

Tyler Durden's picture

The consumer credit number just released and was dreadfully bad. Little revision to last month's number, it printed -$9.5bn against an expectation of +$8bn and prior over $12bn.  This is the biggest drop MoM since April 2010. More surprising is that we just saw the first drop in non-revolving credit in a year: since this is credit that goes out for car purchases and school loans, is either of these two bubbles (student loans and GM subprime loans) about to pop?

This is the biggest swing in the MoM contraction (or momentum deceleration) since May 1998! This shift in momentum, akin to the 'credit impulse' that has started to gather some following, has proved very useful in forewarning credit compression (as opposed to simply MoM changes) and is most recently discussed here by economist Steve Keen.

This is a six standard-deviation deceleration (based on the last 60 years of history).

The full breakdown between revolving and non-revolving can be seen below. The momentum swing is the biggest since 1998.

And courtesy of John Lohman, here is what credit looks like with and without Government loans.

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idea_hamster's picture

 

...but UNlike the 1998 event, we didn't have a blow-out expansion month just before.

If you look at the month prior in 1998, it was huge -- like everone got a new credit card.  Last month?  No such explosive event to pendulum back from -- just good, old-fashioned deflation stagflation.

I suspect that if somone with the data set ran a scatter plot on (t, t-1) then we would see just how outrageous an outlier this point is.

 

Pladizow's picture

With a drop in consumer credit and thus fewer imaginary dollars being brought to life, the FED will claim this is additional proof of deflation and bring on QE3.

Every day there is another reason to buy Gold and Silver!

idea_hamster's picture

<format fail -- if "deflation" doesn't show as struck through, that was the intent.  ben will never let the $ up off the mat.>

Stax Edwards's picture

Agreed.  This is not good.  Sold into this late day rally, moving back closer to net neutral.  Was impressed with the retail figures this week though.  Europe still rules the day...sigh..

legal eagle's picture

I have decided to help expand the credit markets by not paying any of my debt.  There, fixed. 

tmosley's picture

lol, THAT'S what makes you think a crisis is coming?

You are tremendously inept.

Pladizow's picture

Pay attention to the details - notice the use of a question mark!

Libertarians for Prosperity's picture

 

 

With having made quarterly predictions of an imminent COMEX implosion for the past two years, perhaps you shouldn't comment on other's competence.

 

tmosley's picture

Perhhaps you should learn the difference between "suggesting a thing might happen once in 2008, then give 75% odds that it would happen by the end of 2011" and "quarterly" before you make any comments at all?

Libertarians for Prosperity's picture

 

 

*LOL*

WHAT?  !!!

Every three months you CLEARLY warn everyone that the COMEX is about to implode, and that an industrial panic will subsequently ensue, sending silver toward parity with gold. This idiocy can be traced back to 2008 with you.

Not only that, but when silver was crashing last Spring, you predicted it wouldn't trade under $35 ever again.  In fact, you said you'd permanently leave ZH if it traded under $35 for more than 24 hours.  You were wrong only 1 week later, and now again 6 months later.... yet here you are, denying all of it...

*LOL*

 

 

tmosley's picture

Perhaps you should learn the difference between "suggesting a thing might happen once in 2008, then give 75% odds that it would happen by the end of 2011" and "quarterly" before you make any comments at all?

tmosley's picture

And to address your second paragraph, you are again lying.  I said PHYSICAL silver.  ASE's have never been available for less than $35 for a 24 hour period, though they have gotten close.

And further, that contract was recended when that faggot called my work to try to get me fired, something that you did as well (or claimed to have done, where you dropped the name of a professor who no longer worked with our lab group), under the screen name "Red Neck Repugnicant".  You then went on to deny that you ever posted under that name, even though you have encyclopedic knowledge of every discussion I ever had with him.

tarsubil's picture

Whatever, Apple lover!

Id fight Gandhi's picture

It's a sign that the banks have no confidence and ate cutting lines of credit. Rates for credit cards are rising too. Ppl have been using credit to supplement income.

Not a good sign, but the algos are buying the market in e last hour so what else is news?

kito's picture

did it ever occur to anybody that the country needs this. the country needs to have its citizens pay down debt, and...gasp...ohhh....SAVE!?!?!? people are paying down their debt, not defaulting on their balances. deleveraging is necessary if we are ever going to return to a normal state of affairs.........as per bloomberg:

 

"Americans are making progress mending their balance sheets.

David Nelms, chairman and chief executive officer at Discover Financial Services, said on a Sept. 22 conference call that there is “continuing improvement in credit, as our delinquency rate in card reached a 25-year low at 2.43 percent. And for the first time since 2007, our card net charge-off rate dropped below 4 percent.”

SheepDog-One's picture

Save at 0%...YIPEE!

'Credit'...the entire problem of the western world summed up in 1 word.

kito's picture

sheepie-- hear ya, zero percent is a bitch. but better that they are paying down the debts in a timely fashion than if we saw another upsurge in defaults on revolving credit. 

adr's picture

people are paying down their debts until they lose their job and default. I'm fighting a battle to stay in business every day. The demand is there but buyers are scared of inventory. What is going on now makes 2008 look like a cakewalk 2008 through 2009 was my corporation's best year ever.

If I lose my job I won't be paying back any debts. I won't be able to.

BadKiTTy's picture

With you on the everyday battle bit but I have a different take. My customers love the stuff we do but the fact that they are worried means that there is no demand. I think 'demand' is actually being able and willing to spend, not liking the idea of spending.

Good luck with the battle - I wish you well

K@

macholatte's picture

 the country needs to have its citizens pay down debt, and...gasp...ohhh....SAVE!?!?!?

 

That's what I thought too. The constant negative mantra about US citizens being the scum of the earth because they spend and not save has been going on for years. Now it appears they are working out of debt and that's supposed to be bad. Confusing.

 

A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank.
Ron Paul

Anything that we can do to raise personal savings is very much in the interest of this country.
Alan Greenspan

Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.
Will Rogers

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.
Alan Greenspan

 

Timmay's picture

Bring it ALL down.

Linus2011's picture

what is that? never took any credit.

Black Forest's picture

what is that? never took any credit.

Me neither. Welcome!

Belarus's picture

With no offset, in other words no QE3, to Shawdow Banking credit contraction, consumer contraction, etc....how does the economy grow?

Answer: It can't. 

Aguadulce's picture

Yep.  The economic viagra is gone, and we can finally return to a relaxing flacid state of truth.

vote_libertarian_party's picture

Maybe some consumers started cranking up their own printing presses...no need for credit.

 

Voila!  Fixed!

Clorox Cowboy's picture

That's coming eventually.  Need a bit more desperation first.

kito's picture

dream on if you think ben will print. printing is over. for christs sake, ben just decreased his balance sheet yesterday. england took one for the team yesterday, printed some pounds at the behest of ben. thats the best you will see for a lonnnnnngggggg time. get used to it. deflation is the soup de jour.....

rlouis's picture

ooooh - dat gonna hurt the banks bottom lines

Belarus's picture

Oh....but no worries, the algo's and short covering will start soon.

Racer's picture

Oh look 'market' goes up... what a suprise

JR's picture

What’s central in triggering the massive landslide of the American economy? Radical manipulation of interest rates!

“Forcing change to the interest rate,” says Ron Paul, “has a more profound effect on the economy than any law Congress has ever passed.”

And in Monday’s address to Congress (entitled Audit Bernanke) Paul pounded the Federal Reserve on its excessive misuse of interest rate policy and its tragic consequences as never before.

“Congress has abdicated its oversight over these ‘expert’ economists at the Federal Reserve, to the detriment of the economic well-being of the American people. Despite overwhelming grassroots support behind auditing the Fed, only incremental progress has been made toward unmasking the Federal Reserve's activities. Full transparency of the Fed's operations remains an elusive goal, but one towards which I intend to devote my remaining time in Congress…

While the Federal Reserve is not fully transparent, what is transparent are the effects the Fed's policy actions have on everyday people. A young couple is thrilled that interest rates are at historic lows so they take out a mortgage in order to buy the house they had always wanted. But as the Fed continues to print money in order to suppress interest rates, the price of food and heating begins to rise. Expenses rise faster than their paycheck, and they find themselves falling behind on their mortgage and eventually face foreclosure. Or imagine the elderly retiree dependent on Social Security and a small amount of savings. She has not received a cost of living increase to her Social Security in years, despite the ever-increasing cost of food and health care. Extended low interest rates mean that her savings account earns almost no interest each year, so her savings are rapidly depleting. She fears that within a couple of years she may be left with no money and no way to support herself. And then there is the single mother who has been laid off from work for the past 18 months because the rising prices of production inputs caused by the Fed's inflationary monetary policy forced her employer to downsize the company in order to reduce costs. And with prices for the company's finished goods continuing to rise as the Fed continues pumping new money into the economy, consumer demand has dropped, making it all the more likely that her company will never be able to rehire her…

 “Instead of recognizing the futility of trying to inflate our way to prosperity with artificially low interest rates, and allowing the interest rates to reset to a true, market-determined rate, and allowing prices to fall so as to allow malinvested resources to be put to better use, the Fed repeated the mistakes of the past by pumping more money into the economy. With an official inflation rate of nearly four percent, interest rates on savings accounts of well less than one percent, and a stock market that has stagnated over the past three years, there is no incentive whatsoever for consumers to save or invest. Money sitting in the bank a year ago would have lost nearly four percent of its value by now, money invested in the stock market just as much, and money invested in Treasury bonds over one and a quarter percent. Is it any wonder that people have decided to consume rather than to save?...

But rest assured, the Fed tells us, as long as the bankers are doing all right, everything will be fine Bailouts of the financial sector are the new normal, only now they are conducted covertly through the Fed rather than through Congressional action so as not to arouse public ire as in 2008.”

http://lewrockwell.com/paul/paul769.html

Troll Magnet's picture

hmm..this guy should run for office or something.

MachoMan's picture

Just throwing this one out there...  materially speaking, what's the difference between renting and having a mortgage if you're behind on payments?  Your ass is on the street either way (in an academic vacuum theoretical sense).  For those that have little to no assets for a deficiency or where deficiency judgments are prohibited, then who cares?  Why not go out and get a mortgage if the monthly payments are cheaper net of nets?

Now, if you have a net worth that is touchable (not SS, retirement, etc.), the best method might be a bit different and you might think twice about a mortgage...  of course, if things get that bad, then the holders of your wealth are probably to be second guessed...  (presuming that you are the kind of person that doesn't stuff everything under the mattress).

In short, margin compression on J6P happens any which way you choose.

JR's picture

Exactly. And I think J6P has figured it out.

r101958's picture

...and so far market keeps melting up. Need any more evidence of manipulation?

Belarus's picture

And I always wonder why PM's never melt-up this time of day. You know, someday someone is going to question to absurdity that the market has 5% moves in the last 45 mintues every single day.

buzzsaw99's picture

offers of consumer credit from fascist pricks go directly into the shredder at my house.

tarsubil's picture

I think I'm going to accept the next one I get. Going to buy a crap load of PMs and then take the 12 months of 0%.

tarsubil's picture

Love those videos. But did walstreetpro2 pay the bill? I'm just going to pay the minimum then close the account to screw the bank. Did that to Wells Fargo with a 0% 12 month loan where I made all the min payments and then called a lot to tie up their lines and lower their workers morale by telling them they work for an evil POS bank.

buzzsaw99's picture

But did walstreetpro2 pay the bill?

 

Both wsp2 and cheeky bastard said they absolutely would not be paying the money back. has anyone seen cheeky? Deep underground?

humblepie's picture

Don't forget the 3% transaction fee most cards charge these days. Gone are the 0% no fee offers in 2002-2004.

tarsubil's picture

Yeah, there will be a mark up but I'm guessing that will be washed out by the rise in PMs over the next 12 months. I'm playing catch up with my stack.