Consumer Credit +7.5%, Revolving Credit +11.5%, Non-Revolving +6.25% YoY

Year-over-year expansion of consumer credit continues unabated. It's the only way people can "afford" to buy things.

The Fed's Consumer Credit Report for May shines a bright spotlight on a huge problem.

In May, consumer credit increased at a seasonally adjusted annual rate of 7-1/2 percent. Revolving credit increased at an annual rate of 11-1/2 percent, while non-revolving credit increased at an annual rate of 6-1/4 percent.

To keep consumption up, consumers must borrow more and more. And rates keep going up.

New Auto Loan Rates

​Credit Card Rates

​What can possibly go wrong here?

Mike "Mish" Shedlock

Comments
No. 1-4
LawrenceBird
LawrenceBird

Mish - you really should go back and look at the total credit outstanding on either a continuously compounded annual basis or log scale. No where near as frightening and if anything, this past decade is less volatile and at the low end of growth.

themonosynaptic
themonosynaptic

@KidHorn is right.

Consumer sentiment seems to lag reality by about 1/4 or more of the real economic cycle. It takes a while for and expansion to penetrate the general consciousness, but once it does, it takes as long for the realization that the party is over to really hit. We saw this last time round where property peaked in 2006 but the realization came in 2008 when the headlines made reality inescapable.

I suspect we are leveling off at the moment and are in danger of tipping into the next recession, however I always remember Barry Ritholtz (Mish's favorite, not) admonition that "nobody knows nothing" (I know he didn't coin this, but the one time I shared a stage with him at an event in NYC in 2010, he reminded us all of it).

KidHorn
KidHorn

Maybe this is related to the low unemployment rate. People get a job and the first thing they do is borrow against future earnings.

thimk
thimk

I guess the question is "who owns the securitized non government consumer debt". We can probable surmise that it is not owned by the originators/special purpose vehicles entities. The lower tranch defaults will cascade into the AAA rated upper "lip stick on a pig" tranches. Very similar to the sub prime mortgage crisis. Securitization is a great way to remove loan loss risk from your balance sheet ; but it ultimately lands on some one else's books.

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