There’s a huge drop in consumer credit but it’s related to student debt repayments. Otherwise, nonrevolving is flat as credit card spending soars. So, what’s next for the economy?

Consumer Credit from Fed monthly report, chart by Mish

The Fed’s Consumer Credit report shows a huge $30 billion plunge in nonrevolving consumer credit. $27 billion of it was due to restarting student debt repayments. Otherwise nonrevolving debt went down $3 billion.

Otherwise, consumers kept racking up credit card debt to the tune of another $15 billion making the overall decrease counting government debt -16 billion.

Revolving Consumer Credit in Billions of Dollars

On a real (inflation-adjusted) basis, credit card debt is still below the 2008 peak. But the slope of the spending is not sustainable, especially in nominal terms.

Consumers have spent all of their pandemic free money handouts and have nowhere to turn other than credit cards to maintain standards of living.

Consumer Credit in Billions of Dollars Since 1969

Consumer Credit from Fed monthly report, chart by Mish

That chart shows the results of Fed maneuvers, cheapening interest rates to fight recessions.

None of this matters until it matters but it seems like it’s finally starting to matter as interest on $33 trillion in national debt soars out of sight.

Nonrevolving debt appears to be rolling over and even went negative excluding student loans.

Residential housing is extremely weak due to mortgage rates approaching 8.0 percent. Expect housing to worsen.

What’s Next?

My standard answer applies: I don’t know, nor does anyone else.

However, we can discuss the inflationary and deflationary forces in play.

Deflationary Forces in Play

• Residential housing is in the gutter and will remain that way.
• Commercial real estate losses are mounting.
• Banks are curtailing credit.
• Student debt repayments will take a bite out of spending that would have gone elsewhere.
• The pandemic savings have likely been spent.

Inflationary Forces in Play

• Bidenomics is highly inflationary as are Biden’s regulations attempting to force people into EVs they cannot afford.
• Union contracts are highly inflationary
• The Inflation Reduction Act is highly inflationary.

Stagflation Anyone?

If you change “deflationary forces in play” to “recessionary forces in play” you arrive at recession plus inflation which is stagflation.

How the Fed Destroyed the Housing Market and Created Inflation in Pictures

On October 5, I commented on How the Fed Destroyed the Housing Market and Created Inflation in Pictures

Mortgage payments are the least affordable in history but it’s even worse than it looks because the chart does not show property taxes or insurance.

There’s eleven charts in the above link, please give it a look.

Let’s Discuss Excess Pandemic Savings

How long the consumer can hang on may depending on the answer to this question: How Much Pandemic Savings Is Still Unspent?

My guess is none.

Factor in Bidenomics and union wages vs the recessionary forces and it appears we are headed for stagflation.

Hello, Fed. What will you do for an encore?

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