The Federal Reserve's consumer credit report for November 2011 shows a 9.9% monthly increase in consumer credit. Revolving credit increased 8.5%, and nonrevolving credit increased 10.7%. Seems the financial sector said release the Credit Kraken!

The report gives percent changes in simple annualized rates, also known as a continuously compounded annualized rate of change.

You'll see headlines blaring consumer credit soars and is the highest increase in a decade and so on. The truth is, at simple annualized rates, consumer credit increased almost to this level in the last 10 years. Consumer credit, annualized, increased 9.3%, in September 2004, 9.2% in October 2004, 9.2% in February 2002 and 18.2% in November 2001. Below is the graph of the monthly annualized percentage changes in consumer credit going back to 1980.

The Federal Reserve's consumer credit report for October 2011 shows a 3.7% increase in consumer credit. Revolving credit increased 0.6%, and nonrevolving credit increased 5.3%.

The report also gives percent changes in annualized rates. They are:

• Consumer credit: 3.75%
• Revolving credit: 0.5%
• Bonrevolving credit: 5.25%

Overall consumer credit increased $4.2 billion dollars to $2,468.8 billion. Revolving credit increased $0.8 billion while non-revolving increased $3.4 billion. Revolving credit are things like credit cards and non-revolving are things like auto loans and student loans.

From the above graph we can see outstanding consumer credit drops correlate to recessions. This report does not include charge offs and delinquencies, which increased slightly for Q3. Below is total consumer credit.

We admire fine writing, a rarity in economics and finance. Such is a new economic letter, Future Recession Risks: An Update:

On cue, economic forecasters have been flourishing their recession trumpets, sounding a symphony of predictions that put the odds of a U.S. recession in the neighborhood of one in three over the next twelve months. In this Economic Letter, we join this ensemble, updating the recession probabilities provided last year in Berge and Jordà (2010). In that Economic Letter, we put the odds of recession at about one in three by the end of the summer of 2011, rising to even odds of one in two toward the first half of 2012.

Hark! The Herald Angels Sing but not to an economic rebirth, oh no, instead more voices join the second coming recession chorus. Flip a coin, we have a 50% recession probability for early 2012.

Researchers analyzed the conference board's leading economic indicators and then accounted for a European financial crisis redux by using international leading economic indicators of other countries. Their below graph shows the results.

The Federal Reserve's consumer credit report for August 2011 shows a dramatic annualized decrease in consumer credit, -4.6%. Revolving credit decreased at an annual rate of -3.5%, and nonrevolving credit decreased at an annual rate of -5.25%.

Overall consumer credit dropped $9.5 billion dollars to $2,444.9 billion. Revolving credit dropped $2.2 billion while non-revolving decreased $7.3 billion. Revolving credit are things like credit cards and non-revolving are things like auto loans and student loans.

From the above graph we can see outstanding consumer credit drops correlate to recessions. This report does not include charge offs and earlier delinquencies for Q2, of April, May, June, increased. Below is total consumer credit.

So much for Helicopter Ben swooping in and enacting more quantitative easing. The FOMC statement tells us nothing we don't already know. Nor does the Fed have any more magic bullets. The economy sucks, we have a jobs crisis and about the only thing new is a mid-2013 end date for keeping interest rates extraordinarily low:

The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

There were three dissenters, out of 10, on the decision to guarantee a low federal funds for a two year time period, preferring no defined time window.

What one can gleam from this is the Federal Reserve now believes this economic malaise will continue for two more years. We've known that but now it's official, the Fed is acknowledging the long, protracted economic disaster which is the new normal of America.

The good news is the Fed at least acknowledges our terrible economy, although their previous GDP, unemployment and growth projections were much happy talk.

While our Congress slashes our social safety net and spews economic fiction on how deficits somehow matter when it comes to our jobs crisis (they do not at this point), traders are placing bets the United States is downgraded and even goes into default.

The bet that shook up the world today was a $1 billion dollar futures trade.

Someone dropped a bomb on the bond market Thursday – a $1 billion Armageddon trade betting the United States will lose its AAA credit rating.

In one moment, an invisible trader placed a single trade that moved the most liquid debt market in the world.

The massive trade wasn’t placed in bonds themselves; it was placed in the futures market.

The trade was for block trades of 5,370 10-year Treasury futures executed at 124-03 and 3,100 Treasury bond futures executed at 125-01.

The value of the trade was about $850 million dollars. In simple terms, if that was a direct bond buy, no one would be talking about it.

However, with the use of futures, you have to have margin capacity behind the trade. That means with a single push of a button someone was willing to commit more than $1 billion of real capital to this trade with expectations of a 10-to-1 return ratio.

You only do this if you see an edge.
This means someone is confident that the United States is either going to default or is going to lose its AAA rating. That someone is willing to bet the proverbial farm that U.S. interest rates will be going up.

QE3 has been predicted by many as the next round of quantitative easing. The Federal Reserve's latest FOMC meeting minutes suggest no more quantitative easing, beyond the competition of QE2, according to Bloomberg:

Federal Reserve officials signaled they’re unlikely to expand a $600-billion bond purchase plan as the recovery picks up steam and the threat that inflation will fall too low begins to wane.

The economy is on a “firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Federal Open Market Committee said in a statement yesterday after a one-day meeting in Washington. While commodity prices have “risen significantly,” inflation expectations have “remained stable.”

The actual Federal Reserve FOMC press release said:

Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.

The Federal Reserve released their Federal Open Market Committee meeting minutes from last January 25th.

They believe GDP, or economic growth will be higher and of course, the jobs crisis will still be dismal.

As depicted in figure 1, FOMC participants’ projections for the next three years indicated that they expect a sustained recovery in real economic activity, marked by a step-up in the rate of increase in real gross domestic
product (GDP) in 2011 followed by further modest acceleration in 2012 and 2013. They anticipated that, over this period, the pace of the recovery would exceed their estimates of the longer-run sustainable rate of increase in real GDP by enough to gradually lower the unemployment rate. However, by the end of 2013, participants projected that the unemployment rate would still exceed their estimates of the longer-run unemployment rate. Most participants expected that inflation would likely move up somewhat over the forecast period but would remain at rates below those they see as consistent, over the longer run, with the Committee’s dual mandate of maximum employment and price stability.

Below is their table of GDP, unemployment and inflation estimates.

Back here on Planet Earth after Sputnik's failure to launch, we have the CBO projecting a $1.5 trillion dollar budget deficit.

We estimate that, if current laws remain unchanged, the budget deficit this year will be close to $1.5 trillion, or 9.8 percent of GDP. That would follow deficits of 10.0 percent of GDP last year and 8.9 percent in the previous year, the three largest deficits since 1945. As a result, debt held by the public will probably jump from 40 percent of GDP at the end of fiscal year 2008 to nearly 70 percent at the end of fiscal year 2011.

This is the 2011 fiscal projection from the Budget and Economic Outlook: Fiscal Years 2011 Through 2021 report.

While the deficit gets better after 2011, the public debt becomes 76.7% of GDP by 2021.

The Federal Reserve has a dissident in their midst who is about to get FOMC voting rights. Philadelphia Federal Reserve President Charles I. Plosser gave one wallop of a speech making it very clear he disagrees with the Federal Reserve bailing out the Banksters and the Housing Market. He also disagrees with intervention in assets as well as giving the illusion the Federal Reserve can really do something about unemployment. From the speech:

I have suggested that the System Open Market Account (SOMA) portfolio, which is used to implement monetary policy in the U.S., be restricted to short-term U.S. government securities. Before the financial crisis, U.S. Treasury securities constituted 91 percent of the Fed’s balance-sheet assets. Given that the Fed now holds some $1.1 trillion in agency mortgage-backed securities (MBS) and agency debt securities intended to support the housing sector, that number is 42 percent today. The sheer magnitude of the mortgage-related securities demonstrates the degree to which monetary policy has engaged in supporting a particular sector of the economy through its allocation of credit. It also points to the potential challenges the Fed faces as we remove our direct support of the housing sector.