While monetarist clowns focus on so-called excess reserves and the huge surge in inflation that is supposed to bring (See Fictional Reserve Lending And The Myth Of Excess Reserves) I am watching the biggest plunge in consumer credit since WWII.

Please consider Consumer Credit in U.S. Drops Record $17.5 Billion.

Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.

The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The series of 10 straight declines was the longest since record-keeping began in 1943.

“Double-digit unemployment is eroding consumer confidence and the uncertainty is prompting consumers to pay down their credit card debts,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We have not seen such a wholesale reduction in consumer credit since the last time we had double-digit unemployment rate following the early ‘80s recessions.”

Revolving debt, such as credit cards, plunged by a record $13.7 billion in November, the Fed’s statistics showed. Non-revolving debt, including loans for autos and mobile homes, declined by $3.8 billion. The Fed’s report doesn’t cover borrowing secured by real estate.

Bank of America Corp. Chief Executive Officer Brian T. Moynihan has said the largest U.S. lender needs to reduce the loss rate on credit cards, which ranked highest among the nation’s six biggest card companies in November. Bank of America’s card defaults are “still very high,” Moynihan, 50, said.

‘Significant Bubble’

“As an industry, we over-lent and customers over-borrowed, and that led to a fairly significant bubble,” Moynihan said Jan. 4 in an interview on Bloomberg Television in Raleigh, North Carolina. “We have to help lead the economic recovery. At the same time, we have to be responsible lenders.”

Total Consumer Credit

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Total Consumer Credit Percent Change From Year Ago

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Total Revolving Credit Outstanding

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Consumers Attitudes Are Key To Deflation

The Fed has pumped (attempted to is a more apt description) $trillions into the economy.

Consumers (and lenders) responded by cutting credit. Here is the telling comment of the week from the CEO of Bank of America: “We have to help lead the economic recovery. At the same time, we have to be responsible lenders.

New Religion

  • Banks have a new religion on lending.
  • Consumers have a new religion on borrowing.

If you think that is inflationary, you have no idea what inflation is. In case you need a refresher course please consider Fiat World Mathematical Model.


It is not clear how much Consumer Credit really dropped. I received an email on Saturday from “Ivan” who caught an error in the Fed’s G.19 spreadsheet.

Ivan writes:

Last night I commented on your “Consumer Credit Drops Record $17.5 Billion…” post, under the nickname Coyote on RocketSkates. The subject of my comment was that I found a spreadsheet error in a sheet available at the Fed’s download page for G.19.

The published data for June-November 09 repeats exactly the data for June-November 08, and appears to affect the gross total (nsa) number from which the headline (sa) numbers are derived.

Assuming that the data over a five-month period did not repeat itself exactly for five months, exactly one year later, one has to conclude that the Fed’s auditing and reporting is sloppy, even on important releases. Conspiracy and manipulation are plausibly deniable, bad auditing, less-so.

Next, I sent an email to ‘Tyler’ over at Zero Hedge, and he soon posted an entry on the subject, here: http://www.zerohedge.com/article/blatant-data-error-federal-reserve

This morning, I availed myself to Ron Paul via email, in the hopes that this might add some straw to the camel’s back about the Fed’s audit procedures.

Mike “Mish” Shedlock
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