What happens when consumer savings plunge to year lows [4], when a major shopping holiday is just around the corner, and when every TV station tells you to spend, spend, spend for Thanksgiving just to show your friends and family you care for them? Why people go out and buy on credit of course. Lots of credit. As the just released G.19 [5], aka Consumer Credit, data from the Fed indicates, in November US households borrowed a 10 year high amount of $20.4 billion. Of course, reading between the lines confirms that all is as usual not as it seems, and not to conclude that the money multiplier model is back in action. Because of the $20 billion, only $5.6 billion was revolving credit, with the bulk in cheap Subprime loans funded by the government for purchases of GM vehicles and student loans. Granted even so the revolving credit jump was the biggest since February 2008, when deleveraging was the last thing on consumers' minds. So are consumers relevering again? And if so are they doing so because they are confident the economy is improving? We doubt it, and we are fairly confident December data will be quite different and will show a notable reversal when effecting for all the record merchandize returns following the early Thanksgiving retail splurge. Judging by the market's non-reaction to this news, it seems to agree. Because if it didn't it would also means that it is about time for the Fed to start tightening: and if there is one thing that would guarantee a 30% instantaneous correction it is the mere whisper that the Fed needs to withdraw some of its $1.7 trillion in excess liquidity out of the system.
Consumer credit: revolving and non-revolving.
[6]
Consumer credit by source:
[7]