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Record plunge in consumer credit: so what?

September 9, 2009

Yesterday, the Federal Reserve reported that consumers reduced their debt by a remarkable $21.6 Billion during July.  Click here for the story: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avvF5aNtrCfc

Bearish economists will seize upon this data to show that the consumer is retrenching; final demand will not grow;  and the economy may lurch back into a sink hole.

Bullish economists will seize upon this data to show that consumers are finally behaving prudently, their balance sheets are being repaired, and the seeds are being sowed for a more-balanced, sustainable expansion.

Rocky will seize upon the data and say, “If you extrapolate the acceleration of  this decline,  consumers will be entirely debt free in a couple of years. That seems pretty unlikely.”

A picture is worth a thousand words:

Outstanding Consumer Credit versus Gross National Product

Outstanding Consumer Credit versus Gross National Product

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  1. BDO
    September 9, 2009 at 11:09 am

    I agree we have a long way to go. Like everything that is bad for you…it is easy to get into it, but long and hard to get out. Give us time and we will be able to get rid of this over-excessive lifestyle fueled by easy credit.

  2. allocator
    September 12, 2009 at 12:26 am

    Wow, this market looks pretty toppy – how do I short consumer debt? 🙂

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