Consumers simply not borrowing anymore

One wonders how an economy that is 70% based on consumer spending can grow when consumers are paying down debt rather than spending.

(AP) -- Americans borrowed less for a 10th consecutive month in November with total credit and borrowing on credit cards falling by the largest amounts on records going back nearly seven decades.
...
November's $17.5 billion drop in total credit was the biggest amount in dollars terms since records began in 1943. That represents an 8.5 percent fall from the October borrowing level. That was the biggest percentage drop since total credit declined 9 percent in May 1980.
The borrowing category that includes credit cards fell by $13.7 billion, an all-time record decline in dollar terms. The drop was 18.5 percent from November, the biggest decline in percentage terms since a 29.6 percent plunge in December 1974.
The drop in overall credit for 10 straight months was a record in terms of consecutive declines, surpassing the old mark of seven straight declines set in 1943 and again in 1991.
Borrowing in the category that includes credit cards has fallen for 14 straight months, also a record.

This is a good thing in the long-run. It's just a bad thing in the short-run. That's why the government is fighting it with every method they have at their disposal.

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Debt was one of the economic drivers

now that is exhausted what do we do? If we don't change economic policies we will see no real economic growth.

RebelCapitalist.com - Financial Information for the Rest of Us.

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Post-credit world

Back in early 2008 I asked people what they thought the post-credit world would look like. I asked that question because the credit markets were broken and they simply weren't going to be coming back in this generation.
I didn't get any response, probably because no one knows the answer. We are going to see the answer soon. We've been coasting on government credit for nearly two years, but this is almost played out now.

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structural changes missing in action

I think the "green shoots" are seriously missing how badly trade, offshore outsourcing, consumer predators, the rape of retirement are affecting the middle class.

We have a long slide down, mixed with an Economic "cliff" Armageddon in the middle of it.

It's like memory is erased and they refuse to realize the rhetoric that won Obama the job. That's trade, offshore outsourcing, labor abuses, health care costs, and corporate welfare.

Now all of those much needed changes are simply not happening, so we have this artificial economic float when the real slide is continuing.

Anybody with half a brain who survived the dot con implosion knows the so called "recovery" from that recession was fictional, fueled by a housing bubble and a host bunch of "construction" jobs to make the unemployment stats look better. All the while manufacturing jobs were lost in the millions AND high paying service sector jobs were also lost....in the hundreds of thousands (smaller economic sector).

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It's not going to be good.

If we don't change our economic policies particularly when it comes to employment and wage growth the outcome will not be good.

One thing people fail (or chose to ignore) to realize the two economic drivers over the past 25 years has been: 1) more debt and 2) lower saving rate. Both drivers are exhausted. If we don't replace these drivers the New Normal will be devastating for low and middle income families.

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Debt, not one of, but THE economic engine

The problem has been that debt has been, for thirty years, the faux economic engine of the US, as the economy was being dismantled. Debt is responsible for the egregious number of debt-financed billionaires, whom the PopCultureMedia likens to financial wizards, when all they've been doing is peddling debt (the modern age's Snake Oil) and shoving that debt unto the rest of us, with grievous consequences.

As long as there was rampant securitization going on, then all those mortgage loans, and auto loans, and college tuition loans, ad infinitum, could continue -- which was why the prices rose and rose and rose, generating all those layers of securtization, and securitized financial instruments (CDOs, CBOs, CMOs, CLOs, CDSes, ABS CDS, etc., etc., etc....) generated false markets and market size.

Thus, the economy faltered on, when in actuality the original economic engine -- the manufacturing and R&D base (R&D having been extremely offshored along with everything else; just check declining corporate research investment in academia over the past thirty years) was being dissolved -- or more rightly cannibalized and sold off by the vultures of predatory capitalism.

Ergo, big business killed free enterprise. There are other economic alternatives, ones more suited to democratic economics.

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the other economic driver was

an extremely low personal savings rate. Debt and a low personal savings rate have exhausted as economic drivers.

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consumer credit down -8.5% biggest since 1980

Some more Federal Reserve data.

total down 8.5%
revolving down 18.5%

So, Americans are cutting up (or could be defaulting too) their credit cards.

Supposedly banks are tightening lending but from what I see, the TARP/Zombie banks are busy trying to make "payday loans" a normal thing and it isn't working out too well.

i.e. jacking up interest rates to loan shark rates on people with perfectly good credit.

What kills me about these press releases is how Americans are viewed simply as consumers. Many articles cannot connect up the dots that one needs to have money, income to borrow more money.

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The Mystery on Main Street

An interesting addendum to that is that over the previous decade the majority of banks' loans were consumed with mortgage loans (estimated at over 70% - obviously to make money for banks with the slicing and dicing of said mortgage loans into all those CDOs).

Thus, where was the capital coming from for small business? Doing re-fi's on their homes? Couldn't have been the venture capitalists, whose investment plummeted, and then they were normally interested in fast-moving startups?

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