There’s a huge drop in consumer credit but it’s related to student debt repayments. Otherwise, nonrevolving is flat as credit card spending soars. So, what’s next for the economy?
The Fed’s Consumer Credit report shows a huge $30 billion plunge in nonrevolving consumer credit. $27 billion of it was due to restarting student debt repayments. Otherwise nonrevolving debt went down $3 billion.
Otherwise, consumers kept racking up credit card debt to the tune of another $15 billion making the overall decrease counting government debt -16 billion.
Revolving Consumer Credit in Billions of Dollars
On a real (inflation-adjusted) basis, credit card debt is still below the 2008 peak. But the slope of the spending is not sustainable, especially in nominal terms.
Consumers have spent all of their pandemic free money handouts and have nowhere to turn other than credit cards to maintain standards of living.
Consumer Credit in Billions of Dollars Since 1969
That chart shows the results of Fed maneuvers, cheapening interest rates to fight recessions.
None of this matters until it matters but it seems like it’s finally starting to matter as interest on $33 trillion in national debt soars out of sight.
Nonrevolving debt appears to be rolling over and even went negative excluding student loans.
Residential housing is extremely weak due to mortgage rates approaching 8.0 percent. Expect housing to worsen.
What’s Next?
My standard answer applies: I don’t know, nor does anyone else.
However, we can discuss the inflationary and deflationary forces in play.
Deflationary Forces in Play
- Residential housing is in the gutter and will remain that way.
- Commercial real estate losses are mounting.
- Banks are curtailing credit.
- Student debt repayments will take a bite out of spending that would have gone elsewhere.
- The pandemic savings have likely been spent.
Inflationary Forces in Play
- Bidenomics is highly inflationary as are Biden’s regulations attempting to force people into EVs they cannot afford.
- Union contracts are highly inflationary
- The Inflation Reduction Act is highly inflationary.
Stagflation Anyone?
If you change “deflationary forces in play” to “recessionary forces in play” you arrive at recession plus inflation which is stagflation.
How the Fed Destroyed the Housing Market and Created Inflation in Pictures
On October 5, I commented on How the Fed Destroyed the Housing Market and Created Inflation in Pictures
Mortgage payments are the least affordable in history but it’s even worse than it looks because the chart does not show property taxes or insurance.
There’s eleven charts in the above link, please give it a look.
Let’s Discuss Excess Pandemic Savings
How long the consumer can hang on may depending on the answer to this question: How Much Pandemic Savings Is Still Unspent?
My guess is none.
Factor in Bidenomics and union wages vs the recessionary forces and it appears we are headed for stagflation.
Hello Fed. What will you do for an encore?
Does the $9B in student debt recently forgiven by Biden decrease the student debt by that amount, and also increase govt debt (or comes out of already budgeted debt)?
yes – it would increase the deficit
Mish –
Comparing total REAL CC debt now to 2008 is flawed for two main reasons.
1) It’s not per capita, US population is now 12% higher than 2008.
(I have the same issue with new home purchases, the rate of new homes should increase with population, yet we still compare totals to the ’70’s, is this really a “bubble” if the number of homes total isn’t per capita/percentage of populace?)
2) In 2008 a sickening percent of mortgage debt was sub-prime liar loan / A.R.M. loans literally designated to break the market as soon as the FED had to raise rates.
We had immigrants who couldn’t read, much less speak English, buying multiple homes, laborers making min wage, strippers, store clerks, dog walkers, anyone who wanted to buy a house, and in some areas those home’s values were upwards of 400% inflated from that false demand.
The problem now is that we can’t build homes fast enough, we don’t have the labor, it’s not false demand, it’s a supply problem.
This is why home prices are so sticky, it’s not a demand problem, it’s supply.
I DO agree that household and personal debt are a big problem, but nowhere near the problem we had 15 years ago.
I also think the Fed increasing rates further will cause unnecessary pain, again, this isn’t a demand problem, it’s supply, with exception to Oil, which is an ongoing Putin/MBS duopoly that’s actually become stimulative to alt’s and nukes’ job creation.
Look at tickers SMR and NEP, nat gas, “clean” energy & modular reactors are making a move, find decent stocks with good financials in these sectors and you’ll get big returns for the next five/ten years, as with EV makers, but be mindful of their books.
I could care less about the insult riddled left/right debate on global warming, I DO care about cheaper energy derived here on U.S. soil, creating US jobs, that’s also a huge part of inflation that the FED cannot fix.
As for the housing problem, instead of whining about immigrants at the border, hand out some hammers, tape measures and toolbelts at the border and make them offers in exchange for temporary citizenship.
Geez, NYC has an immigrant crisis, 100’s of thousands of laborers in the midst of a housing shortage due to a labor shortage…..and the FED’s raising rates to fight “wage inflation” due to a labor shortage.
Got math?
.
Excellent points and I will add one more. What no one is talking about is that the high yields in CDs, T-Bills and other bonds that everyone is talking about is yielding huge amounts for income now for those people that have the money to invest.
if you have 100k lying around you can easily generate $460/month in “free” income by buying a CD/T-bill at 5.5%. If you have 200k, that’s almost $1000/month in extra income to spend in the economy. And if you have $1m or $2m lying around that’s $5K to $10k/month to spend on stuff. From there just add zeros.
And rates are higher for longer so guess what, that money grows exponentially over time. More money = more spend = more inflation.
Heck, TMV pays 6% now, just be sure to rebalance periodically when it drops to mitigate volatility decay.
great points, i learned in FX trading decades ago.
Why hold fixed income when you can speculate buying equities and personally inflate the stock market. Because, over time, the stock market always goes up. Right.
All I see are undocumented workers on job sites outside Manhattan so what you are suggesting has been done for years
If they are given toolbelts who will pick the cabbage?
I suspect the ‘supply’ issue we have now is a bit overblown due to the massive housing speculation that has been going on in the recent age of QE/ZIRP. Currently there are more housing units per capita than the peak of the last bubble. Changing Demographics and millennial household formation play a role, but I believe when the speculators start to pull out we will have plenty of ‘supply’.
https://fred.stlouisfed.org/graph/?g=18w0B
Now, now. I’m sure the government will have solutions to come and save us. They just need more control over the economy to do it. Easy sacrifice to make.
Oh the humanity, student loan forgiveness! Meanwhile….
Total outstanding student loans = $1 trillion.
Total outstanding social security and medicare promises = $96 trillion.
https://www.realclearpolicy.com/articles/2021/05/05/96_trillion_in_unfunded_us_medicare_and_social_security_benefits_775259.html
Well it’s obvious to me…the problem is student loans, nothing else to see here or worry about….lets hand out more money to boomers and more free healthcare, they deserve it because they made all the right choices in life by primarily becoming soclialists.
That $96 trillion number is spread over 75 years and does not count continuing revenues.
It’s not all due next year.
And are the student loans all due next year? How long do you think it will take to pay those off? My guess is beyond 75 years.
No, once the US is in hyperinflation the loans can be paid off within months, perhaps days. At least by those that have jobs and income.
I almost always agree with you, but for your obsession with old folks getting free stuff.
I’ll guess you’re young.
I can see how some object to non-citizens getting SSA or Medicaid, but retired seniors is a problem?
The handouts are a problem for everyone. I pick on “seniors” because they are the ones most vocal against student loan forgiveness, pandemic stimulus and any other kind of social program EXCEPT social security and medicare for which they see no hypocrisy. As I pointed out, social security and medicare eat most of the federal budget so whining about any social program and not whining about social security and medicare is hypocrisy at its apex.
There should be an auto append to every comment that has a complaint about a social program that ends automatically with “and social security and medicare too should be cut or eliminated .”
Go ahead and read through all the comments and take note at the biggest whiners about debt and see how often they complain about social security or medicare. Also note how no one here stands up for anyone younger than 65. It’s all complaints or condescension about young people demanding higher wages, being lazy or stupid or some other denigration typical crap that comes from that angry, bitter and dying generation. Rather than trying to help lift the next generations they’d rather kick them down the ladder. Here’s a snapshot:
https://finance.yahoo.com/news/gen-z-biggest-skills-gap-161325302.html
All you gotta do is pay attention to the patterns and the trends of comments and you’ll begin to see more clearly.
very true. this blog is bunch of whining boomers……..who are just standard hypocrites. they’ll be going to their dirt naps never changing. the down votes are upvotes for reality.
Boomers are the few that can afford to waste time on financial web blogs. Apparently they didn’t learn to play video games or take experiences (vacations on credit cards). An exception is here and MIsh where there is no waste, only advantage.
” I pick on “seniors” because they are the ones most vocal against student loan forgiveness, pandemic stimulus and any other kind of social program EXCEPT social security and medicare for which they see no hypocrisy. ”
Ok, I get it, the ole’ “Get governments hands off my Medicare” routine, just mind that there are babies in the bathwater.
To folks that don’t know your reasoning, it looks, well, bad.
.
I know you like to knock bidenomics but it’s by far the highest gdp of the 21st century and also the highest job growth and lowest unemployment rate.
What you just said is hilariously true, and so far it looks like the GOP’s platform is going to be all about this miserable economy.
.
Mish – consumers use credit cards for points/cash back rewards, but they settle the balance every month. That’s free money. The US consumer is spending spending spending but it’s not pandemic stimulus — that was gone or invested years ago; no, they’re more robust than ever from 20-30% gains in their incomes from job hops in a screaming hot job market, which is to say nothing of their getting 5% plus on savings. Student loan harbinger also overstated.
Time to accept that the US consumer, at least broadly speaking, is financially stronger than they have been in decades. This is a good thing.
Now can it sustain? Who knows…is it organically stronger or steroidialy stronger? That’s debatable. But you can’t keep calling someone in elevator shoes short, because — irrespective of the means of their vertical augmentation — technically they are not short!
Use too much steroids and you get acne.
Just a quick FYI on the large drop this month. It’s a mirage.
My son had paid off his student loan in 2 years of working a lot of OT. This was paid about 6 months before Biden announced his forgiveness scheme a year or two ago. He talked to his student loan processor of it would be retroactive, and they said yes… and they would fill out the forms for him. Lo and behold a few months later, he received check from the US Treasury for about $20k of student loan “overpayments”. He was stunned as was I. I told him to just deposit them into an interest bearing money market account, and wait for the official forgiveness paperwork. As all student loan pathetic and interest was on hold… free interest income….
Anyhow, when the Supreme Court shot down the scheme, he waited until payments were going to start back up… which they just did, and paid his new loans off in full.
As a taxpayer…I just have to shake my head at the absolute idiocy of our government in general, and democrats specifically. What a racket. If he spent that money instead of banking it, he would be in debt yet again. But I’ll bet a lot of people spent that money…. boosting spending even more.
Kudos to your son and his follow-through.
Apparently he has extraordinary parents.
There is famous quote, roughly paraphrased that says: It was fine until it wasn’t.
Most of the things we are a part of are asymmetric, think NY Jets and Aaron Rogers, ‘it’s going to be great” long build up (upside of curve) then in only four plays disaster (sharp downside of curve). Think Dot.com => long build up, quick drop off.
That consumer spending may be the same thing, we could make the payments until we couldn’t (curve drops down).
Bull market == escalator up
Bear market == elevator down
As I said: Atlanta GDPnow’s latest estimate: 4.9 percent — October 05, 2023. It smacks as a blowoff, a temporary surge in the transaction’s velocity of funds.
The FED thinks banks lend deposits. But it’s nonbanks, MMMFs, that lend deposits. MMMFs deposits are double counted (just like MSBs deposits were from 1913 to 1980).
Monetary savings flowing through the MMMFs increase the supply of loan funds (activates bank-held savings), but not the supply of money (a velocity relationship).
Large CDs are excluded from the tabulations in the money supply, but large CDs is money that is created by the banks. There is just a shift in deposit classifications in the system (loans = deposits).
As Dr. Philip George says:
“The velocity of money is a function of interest rates” and
“Changes in velocity have nothing to do with the speed at which money moves from hand to hand but are entirely the result of movements between demand deposits and other kinds of deposits.”
The increase in the transaction’s velocity of funds was driven by the above reasons and the shift in the composition of the money stock, the increase in transaction deposits relative to gated deposits (the fluctuation in the demand for money).
Atlanta gdpnow’s 4.9% latest estimate is no happenstance.
Let’s make it even more simple. 4.9% GDP is the result of Uncle Sam spending 40% more than revenue: $7T spent / $5T revenue = 1.4. And, it’s the result of the top 40% putting their money where their mouth is by getting 5%+ yield on all sorts of extra monies they’ve got lying around.
Velocity of money or not. It’s flying off the shelves as we speak.
As the FEDGUY puts it: “The money stock is the total amount of money available in a particular economy at a particular point in time2. It can be measured in different ways, such as M1, M2, M3, etc. depending on what types of money are included3.
O/N RRPs do not affect the size of the money stock, but they do affect its composition1. When counterparties lend cash to the Fed, they reduce the amount of reserve balances on the liability side of the Fed’s balance sheet and increase the amount of reverse repo obligations1. This means that there is less money available for lending in the private market, which can put upward pressure on interest rates4.”
I.e., if MMMFs weren’t included in the money stock (in error), then the money supply would increase with a decline in O/N RRPs.
So, gov’t spending is driving the economy.
I’ve read the FedGuy’s web site. He’s smart and you seem to be a fan.
We don’t need PhD in finance & macro econ to know that an extra $2T a year in Uncle Sam spending is inflationary.
Forgive me, but a lot of people are trying to make our current situation overly complicated. It’s not.
The Fed continues to be behind the curve. They need to keep raising rates until they break something, preferably the economy in general to the tune of 6-7% unemployment.
When the Government and their co-conspirator (FRB) dump bales of money from helicopters the price of things (& services) goes up after a lag. You don’t even need a HS diploma.
The velocity of money is a function of the desire for individuals and businesses to hold CASH or equivalents. That desire increases when they become more uncertain.
I’m stunned we haven’t seen a dramatic fall off in consumer spending yet. Maybe all the part-time job creation and credit card spending is keeping the foreclosures, student loan debt repayments, and unemployment monsters at bay for now, but I can’t dispute that data point after data point looks grim.
As always, I greatly appreciate the data analysis and well reasoned comments on this site!
I know I’m a broken record here, but anecdotally, both the sizzling housing market and the proliferation of new business construction in northeast Colorado Springs appears to be still going unabated. I regularly cycle through many of these locations and remain stunned at both the longevity of the boom, and the magnitude of the new construction.
Where is the drinking water coming from?
Its the same in the NYC Metro area especially in the suburbs of Long Island and North Jersey
The bears keep searching for bad news but everytime it doesn’t happen they go searching elsewhere. Student loan forgiveness is a net positive for economic growth.
You are crazy.
It’s inflationary madness and inherently unfair.
It’s intrinsically deflationary by removing debt from money supply.
It doesn’t remove debt, it just transfers it to the government
“It’s intrinsically deflationary by removing debt from money supply.”
Debt is not part of the money supply. Forgiving debt does not reduce bank deposits one iota. Instead it frees up money that went to debt servicing (debt servicing does destroy money), to chase goods and services. That’s inflationary.
Forgiving the debt removes assets from the balance sheets of Banks and the Government making them less stable and more dangerous.
Oh, yeah that’s right. You justify inflationary policies that discriminate against people who made better choices in college by not racking up debt and against people who didn’t go to college but have to pay for other’s bad choices.
Got it! It’s NET POSITIVE, so that’s good for the economy.
I agree with Mish. It’s bad nearly all around. Let me guess. You have student loans?
Put yourself in the position of the Democrat Party. Many of their activists are green haired fanatics with non-monetizable degrees in sociology or gender studies. How better to motivate their ballot-harvesting than by large taxpayer handouts in the form of loan forgiveness
Youre so 2019
There’s no green hair
It’s light blue or lavender for the TQ+ flag
Well just got some real bad news. The Middle East is about to burst into flames. Seems the Palestinian’s are tired of Israel’s abuse and striking back.