Bloomberg said:
Feb. 5 (Bloomberg) — U.S. stocks rose, rebounding from the biggest losses since March, as investors speculated the European Union may come up with a solution for budget deficits in Greece and Spain and consumer credit dropped less than forecast.
Bah.
Here’s the shorter-term outstanding credit picture…
And the rate of change….
Yes, there was a small uptick in non-revolving debt taken on (cars?) but the credit card rate-of-change continued to blow and during the Christmas month it declined by a net $8.5 billion.
Let me also point out that last December, which allegedly was the “depths of Hell” when it came to consumer behavior, revolving credit declined by $6.6 billion.
This December revolving debt declined by 29% more than it did last Christmas season.
Now perhaps you can square that with the claims of a “good” Christmas season that had increased consumer sales, and perhaps you can claim that this somehow represents that the de-leveraging is coming to an end in the consumer space, but I cannot.
First, from a “big-picture” perspective, here’s the consumer credit outstanding graph going back to the late 1960s:
The so-called “consumer revolution” happened through “increased earnings” eh? Uh, no. It happened due to increasing leverage, and this report, may I remind you, does not include mortgages – that’s in the Z1, which comes out quarterly.
Here’s reality folks: people are paying down their credit cards and keeping their car loans current by ignoring their mortgage notes.
The percentage of consumers delinquent on mortgages, but current on credit cards rose to 6.6 percent in the third quarter of 2009 from 6.3 percent in the previous quarter and 4.9 percent in the same quarter a year earlier, a new study developed by TransUnion showed.
The trend first emerged in the first quarter of 2008 when it was at 4.3 percent, Chicago-based TransUnion said.
So in reality we have people who are maintaining their spending by living free in their homes, producing this sort of credit report snippet, as I reported on Friday:
That’s more than a year of “120 days+ late” reported, sequentially, with no foreclosure to close the file.
We have here a Mexican Standoff. The American People have increasingly figured out that the banks are lying about their asset quality and in fact are lying about their profitability by marking their “assets” to myth – that is, ignoring bad loans. They are doing this by refusing to foreclose on defaulted mortgages, as that action would force them to recognize the loss.
Therefore, the logical thing for a consumer who is strapped for money to do is to erect their middle finger toward the bank that holds their mortgage, and instead pay their credit card and live on the money they would otherwise send in for the mortgage, thereby pumping their lifestyle beyond what they could otherwise afford. Some people are undoubtedly doing this even if they could pay the mortgage.
This is what happens when the government countenances, embraces and even promotes false accounting and bogus financial activities – the people figure out the game and come along for the ride as well.
This is “touted” by mainstream media and the government as “economic improvement” when it is no such thing. The underlying quality of the assets behind those loans continues to deteriorate as the payments are not being made. The deficiency continues to grow, eroding the capital base behind the book of alleged “assets.” Eventually this rot of the foundation will cause the all-on catastrophic collapse of these banking “empires”, and since we have refused to cage the credit-default swap monster and in fact empowered him by legalizing bogus “mark to model” accounting fictions the deficiency has been allowed to grow to the point that, if we allow this to continue much longer, not even governments are likely to be able to stop it when it begins to topple.
Do not be fooled by false Gods. The fact of the matter is that consumers have hit the wall. We continue to believe that consumer credit loads are “reasonably serviceable” yet the percentage of the civilian workforce that is employed is back to where it was before “women in the workforce” became a serious component of working America, and near the peak levels of the years prior to that time.
In summary we have solved nothing, credit outstanding deteriorated in the revolving space at a rate 29% faster than it did during the last Christmas season, and there is no good news to be found in the employment coverage ratio – the critical factor for the government being able to raise coverage for its debts via taxation.
PS: You think the big bad central bankers don’t know this? If they truly believe everything is ok, China really doesn’t have trillions of Yuan in bad debts in their banks that are being hidden, and we’re not going to see lots of Portugese-style auction failures along with Greece, Spain, and eventually the UK and America follow it down the bowl, why was there a secret meeting of central bankers taking place in Australia this weekend?
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