By now everyone realizes that Q1 will be the second consecutive first quarter to see a negative GDP print. Wall Street's weathermen formerly known as "economists" have been quick to scapegoat harsh weather once again for this unprecedented "non-recessionary" contraction in the US economy, however what the actual reason for the drop is irrelevant for this specific post; what is relevant is that even in a quarter in which US GDP is set to decline consumer credit, according to the latest update from the Federal Reserve, increased by just over $45 billion. But how is it possible that with such a massive expansion in household credit there was no actual benefit to the underlying economy?
Simple: 98% of the credit lent out in the first quarter, or $44.3 billion, went to student and car loans!
The amount of credit that actually made it into the broader, consumer economy, i.e., credit card or revolving credit: a negative $600 million, despite a jump in revolving credit in March, when it rose by $4.4 billion to $889.4 billion.
So $889.4 billion in credit card debt: as a reminder this is the key credit amount that has to keep growing for consumers to telegraph optimism about their wages, jobs, and generally, the economy. The problem is that as of Q1, this amount was lower than both car debt, at $972.4 billion, and certainly student debt, which in Q1 rose by another $30 billion to a record $1.355 trillion!
In other words, virtually every dollar lent out in Q1 went to such dead-end uses as bailed out General Motors and student loans keeping an entire generation away from the harsh reality of the labor market.
But the most troubling discovery in Q1 is that as we reported last month, America's consumer banks, i.e. depositor institutions, have shut down the lending spigot after seeing a jump in consumer bank lending in 2014. In fact, in the first three months of 2015, depository institutions saw a $32 billion decline in the total amount of credit lent out. So who did lend? Why the US government of course, which was the source of over $39 billion in consumer credit, or the vast bulk, lent out in the first quarter.
In other words, the US government lends out cash, so US consumers can either buy cars from Government Motors in one truly epic circle jerk, or stay in the safe, ivory tower confines of college, and avoid the reality of what is really going on with the US economy.