Americans Reduce Personal Debt Load by $21.6 Billion in July 2009

Americans just reduced their debt load by $21.6 Billion or 10.5% in one month. This monthly drop is a record, going back to 1943.

The Federal Reserve current consumer credit release has last month's consumer credit at $2.4936 trillion and July consumer credit total was $2.4721 trillion.

That's still an astounding figure for consumer debt, $2.5 trillion and about the same total market as 2006. Of course the U.S. population has increased from that time.

Unfortunately the credit card companies didn't get as whacked, with only a 8% drop.

These numbers do not include mortgages, home loans.

My question is how much of this is by choice and how much is limiting consumers access to credit, charge offs and bankruptcy?

August credit card charge offs were at 10.55%...

so are these numbers being spun as choice instead of getting debts discharged by being plain broke, plus banks reducing credit limits and credit lines?

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Note last month's number revision

The original number was $10.3 Billion. It was revised to $15.5 Billion.
In other words, the original number 50% off.

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McClatchy News Declares Consumer Economy Dead

Quite a statement. If true we better find an alternative growth model.

One year later, the easy-money system that financed the boom era from the 1980s until a year ago is smashed. Once-ravenous U.S. consumers are saving money and paying down debt. Banks are building reserves and hoarding cash. And governments are fashioning a new global financial order.

Look at what Prof. Galbraith said in the article:

"The strategy that was stated at the beginning of the year — which is that you would sustain the banking system in order that it would resume lending — hasn't worked, and it isn't going to work," said James K. Galbraith, an economist at the University of Texas at Austin.

Yeap, a total bailout of the financial oligarchy.

Now, that traditional media is realizing that 'neo-liberal' growth model is terribly flawed what are we going to do about it?

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We better start taking this manufacturing strategy serious.

I am glad that traditional media is starting to accept that the 'neo-liberal' economic growth model is terribly flawed and needs to be fixed.

The Obama Administration has an incredible opportunity to transform our economy for next several decades. They should stop trying to re-inflate the bubble and got on with the serious business of transforming our manufacturing sector.

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The post-credit economy

About a year ago I said here that we were going into a "post-credit world". I asked if anyone knew exactly what that would mean. No one answered. I'm guessing because no one knew, and I don't think that anyone knows today.
But we are going to learn. I'm hoping that the attempts to re-inflate the credit bubble end before we bankrupt ourselves.

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It means a much smaller economy.

If there is nothing to fill the void of consumer spending then economy contracts.

But we are not prepared for the societal consequences of a much smaller economy.

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It almost like we need to start over - transform our economy

Bring down over-capacity and start over. Trash this 'neo-liberal' economic growth model.

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ya know, today I was in a "fog"

and felt like writing in big scrawling letters across the entire EP site "We are fucked! Everything they will do will benefit the super elite and screw America!"

kind of thing with no inspiration, kind of a "I have nothing to say because everything the public says will obviously be ignored" despondent feeling.

Ok, now how, just how do we get public backing of some policies we know will work.

Take for example a Financial consumer projection agency. But there are so many!

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One of the things I am contemplating is an internet show

that talks about what we talk about here - hopefully in a way that people understand. I am working on getting my southside Chicago accent back and when I do then the GAME is on.

Seriously, at some point people will start listening. It is extremely difficult to overcome the noise of traditional media.

It's about getting peoples attention and sometimes we have to say outrageous things to get peoples attention.

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specifics

you must be very specific on solutions. One can complain all day long but without backing very specific solutions, what they will do, what their implications are....it just is more "rage in the airways".

That's what EP is for, not only to discuss economic indicators and so on but to also look at real policy solutions.

Believe me, it can get very twisted out there without understanding the specifics as well as what legislation will do what.

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I knew

but distributism and decentralization are bad words here- they're considered economic fiction.

But the sad thing is, there's only one other type of post-credit world that could possibly come into being- one where the rich flee for China.
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Maximum jobs, not maximum profits.

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Maximum jobs, not maximum profits.

Credit will come back though

Because that is how banks make money. Sure right now, they are happy to reduce card limits. They are happy when people pay their cards in full and close them. They are happy when people pay off the car loan.

And we are suddenly doing it at a fantastic rate (good for us!).

But in a year or three, when the only accounts they have left are 1) the "deadbeats"who pay in full each month and aren't moneymakers for the bank and 2) the ones who have gone so broke they have been sold to credit bureaus for pennies on the dollar and written off the books, the credit card companies, auto loan companies, and banks will look around and realize that without customers, they have no money coming in, and without money coming in, they can't earn a paycheck.

Credit will come back. And it won't take very long for it to do so, either.

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Respectfully,

I would offer a viewpoint that may be anathema to this site. That is, if economics is a "science" at all, it is more usefully a forensic science.

As much as I disagree with virtually everything Ben Bernanke has said and done, he did see (or at least feared) the current predicament as one of debt deflation. (Hopefully, we can agree that is our current condition). As a student of the GD, he has vigorously and consistently applied the prescribed antidote provided by Irving Fisher in his seminal 1933 work A Debt Deflation Theory of Great Depressions. Specifically, he paid attention to:

Finally, I would emphasise the important corollary, of the debt-deflation theory, that great depressions are curable and preventable through reflation and stabilisation.

Obviously, this isn't working and, in fact, there are many experts arguing that it is making matters worse. At the same, I think it is noteworthy that Keynes argument for Government Intervention in monetary and fiscal policies were designed to offset business cycle recessions and depressions.

But this is not a cyclical recession! Given the amount of industrial infrastructure already shipped abroad, and in view of the enormous levels of debt to income achieved in the past 25 years or so (and putting the political aspects aside), there was no combination of government policies that could have achieved a good outcome to the present scenario. In other words, there can not be a "keynesian recovery", or to say it another way, a "return to growth" in the economy. As I mentioned in a comment the other day, this is the previous "status quo":

This was, and still is, unsustainable.

I continue to believe that we are really in a political crisis born of an economic depression/recession. We need to somehow "reset" the economy and usher in a new age of no growth, steady state economics. The conundrum is that to do this, one must accept that we need to go back in time to an economic level, and thereby a standard of living, that is well short of recent levels. But that is just not politically feasible, so we will continue to apply the same ineffective "remedies" and the legions of the vulnerable will continue to grow.

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common good, request

You should turn this comment into a blog post.

Today there was a long article on how the reaction to this crisis will cause the next.

Big long history on Federal Reserve Actions too.

this comment is half way there to a full bore essay.

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