Polar Opposite Sides Of Consumer Credit End Up In The Same Place: Jobs

If anything is going to be charged off, it might be student loans. All the rage nowadays, the government, approximately half of it, is busily working out how it “should” be done and by just how much. A matter of economic stimulus, loan cancellation proponents are correct that students have burdened themselves with unprofitable college “education” investments. Without any jobs, let alone enough good jobs, an entire generation of Americans has been hamstrung, absolutely holding back legitimate economic growth. 

In this area, at least, too much debt has been a very clear sign of unproductive finance. Not banking, however; government.

On the opposite end of consumer credit from student loans, suddenly there’s now too little credit being extended – for the same reasons. A mixture of supply-side contraction, banks and other financial firms becoming reluctant to make loans, while demand for credit has waned for these troubling economic perceptions.

Aggregate declines in outstanding credit card balances are pretty clear signs that consumers in the upper ends of the income spectrum are uncertain – at best – about their own near and intermediate-term prospects. Credit cards at times like these get paid down rather than charged-off, widespread repayment of non-discretionary revolving loans a defensive measure, a sign of prudence and risk-aversion.

According to the most recent data compiled by the Federal Reserve, the latter, revolving, keeps declining while, forever upward, student loans are newly minted by the federal government at a near-constant rate no matter what (thus, this loan “crisis”). Total revolving credit declined by more than $5 billion during October 2020 from September, a rather steep monthly contribution to the seasonally-adjusted estimates already illustrating seven months of the same to this point.

As we’ve noted several times before, this despite the Federal Reserve’s best efforts to turn these rather dour perceptions around. Monetary policy, especially as it might influence the sentiments of fund managers, seeks to reassure consumers (and businesses) by supposedly raising inflation expectations and reinforcing them with concurrent increases in share prices bid higher by those fund managers comforted in Jay Powell’s mythical “put” (no matter how many times discredited).

Consumers are then meant to act on these signals. Declining balances in revolving credit show that monetary policy, while clearly having the intended effect on Wall Street, the message isn’t being fully received on Main Street. No exuberance, caution reigns here.

This is no new development, however; only the rate has changed recently. In truth, consumers have been careful about consumer credit since around May 2008. Though levels have risen in the post-crisis era in absolute terms, like everything else credit-wise around the world in the dollar shortage domain it still represents a categorical change in condition before and after GFC1.

Once you account for the non-economic artificiality of the federal government.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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