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Friday, May 08, 2009

March Consumer Credit Plunges

The chances this recession/depression is over are close to zero. Reuters is reporting a massive plunge in consumer borrowing showing that both borrowers and lenders are starting to realise how broke they are. As they say-- when in a hole-Stop Digging!

"March consumer credit fell at an annual rate of 5.2% to a total of $2.55 trillion. This was the biggest percentage drop since December 1990.

February's decrease was revised to $8.1 billion from an originally reported $7.5 billion drop.

Analysts polled by Reuters were expecting a $3.5 billion drop in consumer borrowing for March."

Mish as usual has a good take on this along with this chart.

Notice that until the 1980's and throughout American history, consumer credit played a small role in our economy, with most houshold purchases funded by savings and income and most credit used for business investment. This worked fine, but the Fed and it's statist pals thought we could do better and our "consumer economy was born."

We are starting to see the results. Unlike, the bulk of business investment in a free economy-- most consumer purchases do not lead to higher levels of earnings or productivity to pay off the loans. They can, for a time result in higher asset prices, providing there is more and more credit available to push up prices. But at some point, the last dollars of true savings are spent and the last solvent creditors have borrowed and the cycle goes into reverse.

Well, at least the Feds can borrow and spend for us right??? Well, I serously doubt it. Sadly, American consumers now will not only have to pay for their own mistakes but for the insane policies of our government as well.

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