Bubble Redux: Consumer Credit Soars: Most Since Peak Of Credit Bubble In Aug 2007, 3rd Highest Ever

[stockholmer]

http://www.zerohedge.com/news/unadjusted-consumer-credit-soars-most-peak-credit-bubble-august-2007

As some may remember those long ago days of January, when the market was not still lost in the latest bout of QE-hopium induced euphoria, December sales missed expectations, following even more disappointing November sales, despite propaganda channel promises that the 2011 shopping season was the "strongest ever"... and yet, many were wondering where did the already cash-strapped US consumer procure the cash to shop as much as they did, even if it was well below a record level. Now we know: it was on credit. As the chart below shows, Non Seasonally Adjusted Credit in December 2011 exploded by $33 billion sequentially In December compared to November: the third highest in the past 18 years, and only second to August 2007, which just so happens was both the peak of the market, and the peak of the credit bubble. The SA chart shows pretty much the same: a surge in consumer credit in December, even if the bulk of it was non-revolving, or used for such purchases as offloading some of that GM channel stuffing, and paying for one's college education.

What does this mean? Well, with at least 2 more years of ZIRP, the credit bubble is already back, and it is only uphill from here. US consumers will get increasingly more and more in debt as they use more debt to pay of credit card interest, leading to ever further cash injections to keep asset prices higher to give US consumers the illusion that they are wealthy, so they spend even more, and so on. Just as Bernanke is talking about QE, the US consumer is actually saying it is time to tightening. Needless to say, good luck with that. Congratulations Ben - by exterminating US savers, you have managed to reflate the consumer credit bubble as for the 4th month in a row, nobody is deleveraging, even as the US government continues to add about $140 billion in debt each month. The most epic credit bubble collapse ever is coming fast, and this one will be at ZIRP, which means that even the smallest rise in interest rates will finally and mercifully end it all. Yet an even more epic surge in prices may precede it as banks slowly but surely are forced to push excess reserves into circulation. All $1.6 trillion of them... compared to the $1 trillion of currency in circulation.

snip



snip

[Fuddnik]

1. I guess we know what happens next.

We've seen this play before.

[dixiegrrrrl]

2. A lot of the non-revolving ( red line) is student debt re: college loans.

naturally the banks have securitized the college loans.


[IMG][/IMG]

[Yo_Mama]

3. You are absolutely correct

Credit cards are being used a lot more to purchase stuff, but people seem to keep paying them off.

Car loans are rising, esp. at finance/non finance non bank companies. But not hugely.

The bulk of CC loans go through national banks, and there balances rose a bit through December, but are being paid off quite rapidly in January:
http://www.federalreserve.gov/releases/h8/current/default.htm

Student loans, now - student loans are rising rapidly still. That's the real bubble. I don't think young people will be able to pay back nearly a trillion in student loans with the job and wage prospects they have. My guess is that we have to write off about a third of that.

Since you can't go BK on government student loans, we'll need legislation to do it.

[dixiegrrrrl]

4. I think that the problem is people are paying the card interest

but not paying them off.
Which is why a bubble.

[Yo_Mama]

5. That happened for a long time

But it reversed.

People are now using cards mostly as a payment mechanism. There seems to be some growth in restore-credit cards, but I think most people don't want to pay the interest any more.

There's so much charging for the holidays that you have to wait till February to find out what really happened. If you look at H.8's revolving credit weekly in that link, you'll see that the balances are dropping rapidly.

If you want the long time series from the consumer credit report, go here:
http://www.federalreserve.gov/datadownload/Chart.aspx?rel=G19&series=3e4b643fa48b7bff9962454e556c8761&lastObs=&from=&to=&filetype=csv&label=include&layout=seriescolumn&type=package&pp=Download

Revolving credit has dropped over 170 billion from its peak in 2008, which takes us to 2004 levels currently. Last year was about static (we ended December very close to the level of the prior December), but with costs rising and more cards being paid off every month, that means that carried balances are still declining.

If you go to H.8's charting utility for the weekly, and select Consumer loans: credit cards and other revolving, you'll see that the balances fell pretty rapidly in January and are in fact a bit under those of last January.
http://www.federalreserve.gov/datadownload/Chart.aspx?rel=H8&series=c701db7f997e1234652b203ebc8ec173&lastObs=&from=&to=&filetype=csv&label=include&layout=seriescolumn&type=package&pp=Download

Most financial reporters apparently don't read these reports.