Check out the consumer credit contraction chart, via David Rosenberg — it is astonishing:
United States: Consumer Credit Outstanding (1940-2009)
(year-over-year difference, US$ blns)
Source: Haver Analytics, Gluskin Sheff
Rosie notes that “It’s not just weakening loan demand — financial institutions are rightly becoming more judicious as consumer creditworthiness deteriorates under the weight of mounting joblessness.”
We also know that U.S. credit card defaults hit a record-high in August (Fitch data) — charge-off rates rose to 11.52% from 10.55% in July.
DR also adds:
“If the household debt/income ratio were to ever revert back to 1983 levels, which is exactly where the employment/population ratio has fallen to, we would be taking off at least another $5 trillion of deleveraging left in the pipeline as far as the consumer is concerned. This is going to prove to be a very lengthy process.”
Lastly, Rex Nutting reminds us that the credit squeeze on entrepreneurs is threatening to derail any recovery:
“According to weekly figures provided by the Federal Reserve, total loans at commercial banks have fallen at a 19% annual rate over the past three months, while loans to businesses have dropped at a 28% annualized pace.
Last autumn, bank lending temporarily expanded when other sources of funding from the shadow banking system dried up after the collapse of Lehman Bros. Since then, however, total outstanding bank loans have dropped at an accelerating pace.
The decline in bank lending mostly affects smaller businesses. Larger corporations have alternative sources of funding, including retained earnings, corporate bonds, securitized loans and new equity. Those other sources of capital have increased in recent months, but not enough to offset the decline in bank lending.”
Banks cutting back on loans to businesses
MarketWatch, Oct. 9, 2009, 6:00 a.m.