Friday, September 28, 2007

Total Consumer Credit Outstanding

The shaded areas show economic contractions.

The red trend line is an exponential curve showing an inflation adjusted 3.5% per year (0.29% per month) growth since 1960. That's some serious growth. The population has been growing by 1% so that's more than likely one third of it. People are moving from using cash to using credit cards. That's certainly a lot of it too perhaps. However, I see very little chance that 3.5% real (inflation adjusted) growth is sustainable in the long-term and is a virtual impossibility in the ultra long-term (for reasons I have described here).

The key piece of data in this chart, at least to me, is what happens when credit stops growing (in inflation adjusted terms). It has been quite a long time since that has happened. The last such time was during our last consumer recession (early 1990s). Some would say we'll never have another one of those. The consumer can no longer be tapped out. The consumer is 100% resilient even in the face of $80 oil and a crumpling housing market.

I don't mind climbing a wall of worry, but that looks a lot more like a cliff of hope to me. In any event, the consumer clearly is slowing his growth of consumer credit. Should it turn down, we better hope the size of the fall doesn't match the height of the climb.

Here's an update showing per capita consumer credit (as requested by an anonymous comment left for me).

You will note the inflation adjusted per capita growth in consumer credit has averaged about 2.4% per year (0.2% per month). It also makes the chart look that much more ominous (in my opinion). Although it could also be argued that the current trend is our friend (flat-lining).

Here's another update showing the curve from 2000 to present (as requested by energyecon).

The trend line is a 6th order polynomial. Don't expect much out of it as a prediction tool (Trend Line Disclaimer). However, it might be showing that the curve is not rolling over and is perhaps beginning to trend up again.

Source Data:
Consumer Credit Outstanding Total
Consumer Price Indexes (CPI)
National Bureau of Economic Research, Inc.
St. Louis Fed: Population Data


Anonymous said...

I gotta say that this graph is close to meaningless. The outstanding debt needs to be stated in terms of per capita, per household, as a ratio of median income, or something like that. Or all of them, in one nice multilayer masterpiece.

Stagflationary Mark said...


I appreciate your comments.

It could certainly be improved by adding such things (and acknowledged as much in my text) but it is hardly meaningless as it stands, at least in my opinion.

It shows that the total real credit can fall even AS the population rises, which perhaps is not intuitively obvious in this brave new debt embracing world we live in. Your version would simply magnify the effect seen. Correct?

That being said, I will see what I can do about putting up a chart to adjust for the population, which should satisfy at least some of your request.

Too bad I won't be able to come up with figures on how much of this debt is actually extra burden though. For example, I always pay my credit card off in full. The balance was zero before I had a card. Now it is always positive. That's an infinite growth with absolutely no increase in my burden. If everyone did that, the chart would look VERY ugly but would also be VERY misleading, lol.

Anonymous said...

Stag Mark,

Thanks for more awesome charts, the meaning is found in the interpretation as in all things...the per capita chart is more ominous looking in my view as well - I am curious, what does a curve fit for just 2000 forward look like on the per capita chart?


Stagflationary Mark said...


I updated this post with another chart. It adds yet one more thing to think about.

I'd guess that the line is being pushed around by quite a few forces. Here's just a few of my theories.

Pushing it up:
* The deflationary effect of flattening home prices: deflation causes debt to go up in real terms.
* Slowing MEW (mortgage equity withdrawal) might mean people are turning back to credit cards.
* Possible optimism that allows people to borrow more from the future to spend today.
* Fear of inflation causing people to buy today while it is cheaper.

Pushing it down:
* The inflationary effect of rising oil prices: inflation causes debt to go down in real terms.
* Possible fear of the job picture causing people to save for rougher times.
* Possible fear of deflation causing people to pay off debt today before it gets more expensive.

I'd certainly not make any big bets on where it heads next. Let the epic battle between inflation and deflation continue!