Consumer Credit Crucible

Here is a closer look at the details of the Federal Reserve G.19 Release on Consumer Credit (all amounts NSA). Since the financial system reckoning in October 2008, total consumer credit began declining and only stopped on a quarterly basis in August, 2010. The steep and sustained credit contraction is unprecedented since World War II. Non-revolving credit has been close to flat since the crash, while revolving credit continued to contract until December, 2010 as households repaired their balance sheets.



Total non-revolving credit started showing growth again in July, 2010, but the composition of that growth has been lopsided. Commercial banks and finance companies had a short-lived spike in 2009 loans, probably due to the Cash for Clunkers program, but since then, both have continued to contract. December 2010 showed an increase in commercial bank lending. We'll have to watch to see if this is a trend reversal. Securitized consumer loans fell down and can't get up, down more than 50%. The only sustained growth, which went parabolic after the crash and made up for contraction in all other categories by adding over $200 billion, was Federal Government/Sallie Mae student loans. That's a lot of money and a lot of people feeding the higher education bubble.



Total revolving credit peaked in July 2008 and is down about 18% through December, 2010. The last two months showed some signs of life. Whether this was one time holiday spending or a new trend is to be determined. An interesting footnote is the accounting change in March, 2010 that moved all securitized revolving credit back on to the balance sheets of banks. The net change of those two categories during the month of the accounting change was -$41.7 billion. How much of that was from pay offs vs. write downs is unknown.

While total consumer credit has stopped declining, the composition is unbalanced. Until December, 2010, households in general were still paying down debt faster than they are taking out new loans. The big exception is student loans, which have been growing at about 75% YoY since October, 2008.

Maybe the rapid growth in student loans corresponds to the rapid growth in unemployed people attempting to retool for a new career after the reckoning. I hope it works out for these new students because student loans, unlike other kinds of consumer credit, cannot be discharged in bankruptcy.