The other shoe to drop - consumer credit cards

Even as the stock market stages a bear market rally, and the banks are showing some small signs of happiness with their newly-received trillions in public money, the signs from the real economy are pointing down, and hard.

Our most recent economic 'strength' was an illusion built on borrowing. Unfortunately, our preferred measure for our economy, GDP, counts borrowing-fueled "growth" as though it were real.

For example, if two people live next door to each other, and both earn $50k/year, but one of them borrows a million dollars and spends it all, GDP would measure the borrower as having an economy 20x stronger than the other.

In this week's newsletter by John Mauldin, he quotes a very interesting set of statistics on consumer credit card borrowings.

Can't Borrow on Your Home? Whip out the Credit Card!

So, did American consumers cut back on borrowing? Not if they had a credit card! Total loans from commercial banks to consumers grew by $89 billion for the 12 months ending in September. $61 billion of that was credit card debt, and the amount in recent weeks has exploded. Let's look at this analysis from my favorite slicer and dicer of numbers, data-wizard Greg Weldon ( Going with a Halloween theme:

"FAR MORE 'telling' is the LOPSIDED degree to which Credit Card balance growth is 'contributing' to total growth in Consumer Loans, a sign of intensifying 'stress' on consumers, amid accelerating job loss, home price deflation, and equity-market paper wealth devaluation.

"Even the raging Frankenstein stops to note the shockingly UGLY data details:

Commercial Banks, Outstanding Credit Card Balances ... SOARED by an eye-opening + $7.1 billion in the WEEK ending October 15th, representing a +1.9% single-week rate of expansion ... or ... nearly ONE-HUNDRED PERCENT annualized (+98.4%).

"Even more 'telling' is the 'read' acquired by contemplating the following pair of data FACTS:

  • Credit Card Loans, 10 months Sep-07-thru-Jul-08 ... up + $29.1 billion
  • Credit Card Loans, 10 weeks Aug-08-to-mid-Oct-08 ... up + $32.3 billion

"In other words, Commercial Bank 'exposure' via the total amount of Credit Card 'loans' outstanding has risen MORE in the last ten WEEKS, than it did in the previous ten MONTHS COMBINED !!! Moreover, the growth in the last ten-weeks, $32.3 billion, or about $600 million per 'shopping day' since the beginning of August ... represents nominal growth of + 9.3% ... or ... + 48.3% annualized over the last ten weeks.

"According to American Express, delinquencies on credit payments rose to 4.1% of all credit outstanding in the 3Q, up from 2.5% in 3Q of 2007, with Bank of America's rate rising even more steeply, to 5.9% in the quarter.

"Moreover, the 'pool' of loans deemed 'uncollectable' rose to a high 6.7% in the 3Q, soaring from 3.6% last September."

What consumer spending there is has been fueled in part by credit card. Greg notes this uncomfortable piece of data: the second largest "merchant-vendor" for credit card use is now McDonalds. This suggests that many consumers are in serious distress when they need to get their $4 Big Mac and fries with a credit card.

This is the problem facing the economy next year. Credit card growth like we have seen in the last few months has never been sustained at such a level, and is unlikely to be this time either. This is especially true as credit card delinquencies have been rising, as noted above.

The next administration is going to be faced with a retrenching consumer, which will likely push the economy even deeper into recession. This will of course result in higher unemployment. In the first year of the next president's term, he is likely to see another one million people lose their jobs, pushing unemployment to almost 8%.

Peter Bernstein, in his regular letter, notes the rising levels of the DURATION of unemployment. It is now over 9 months, close to 38 weeks. As the recession deepens, this means a lot of people will stop receiving unemployment benefits. Oh, and of course, unemployment is not good for consumer spending. And it will put even more pressure on homeowners behind on their mortgages. And unemployed people do not pay taxes, widening the deficit.

If you thought the recovery under Bush was the "jobless recovery," wait until you see the next version without the benefit of profligate consumer borrowing and spending.

The entire thrust of the bailout is to create conditions where new borrowing can again continue to compound uninterrupted, forever, without limit. But all the signs are telling us that the debt-cycle has hit its limit.

As graduates of the Crash Course, you know how silly the notion of perpetual growth is. As a thinking person, you know how silly it is. Nothing can grow forever.

But our leaders do not know any other way, and so they fight to preserve the status quo, while squandering this golden opportunity to 'fess up to ourselves and admit the obvious - our former borrow-and-spend consumptive lifestyle has no future.

We need to get back to living within our means, and understand that there's a world of difference between an economy built on savings and investment and one built on borrowing.

Unfortunately, this distinction is (so far) lost on both political parties, both candidates, and the entire collection of Wall Street financial machinery.

So it remains up to us to spot it and prepare for the consequences as best we can.

Today I spent five hours helping a local person who runs incredible programs build a lodge in the woods that will be used for homeschoolers and after-school kids as they learn about living in the natural world with a deeper sense of place and community. This, at least to me, represents a form of investment that clearly does have a future.


This is a companion discussion topic for the original entry at

And to think, in the middle of the great expansion of credit card debt consumer spending was still falling.

Really brightens your day doesn’t it. Cool


Unfortunately, this distinction is (so far) lost on both political parties, both candidates, and the entire collection of Wall Street financial machinery.

The patient, our economy, needs morphine and both candidates are providing aspirin.

The patient, our economy, needs morphine and both candidates are providing aspirin.
There is another way to look at it. The market needs to be left alone to heal itself. Massive doses of morphine are masking the symptoms. It won't be long when they'll be applying massive doses of opium.

Opium. Hmmmm. The US could buy it from the farmers in Afghanistan, I was reading that the war drove most of the farmers over there into growing it to survive and now it accounts for nearly 90% of the worlds supply of it.

good idea! in fact, such a good idea that the CIA has already been doing it for years. why else would heads of CIA, CEOs of goldman and secty. of treasurys always be a merry-go-round between the three organizations. one is always ex-of-another. perfect circle. colombian coke too. research it. bolivia is not behaving well lately so they are being punished.

As i understand Afghanistan, they let them grow opium to buy off the warlords. The military doesn’t give a shit if they can’t survive.

Remember, opium is the religion of the people, er, no…that was the 60’s…I guess that religion is the opiate of the people.

Well, Marx was half right, maybe.



Yes, but the latter ‘lifestyle’ is far more fun - and we are constantly bombarded with reminders of that notion by an entire industry of marketing professionals whose sole purpose is to pursuade us that we are entitled to that new car, or a vacation to Hawaii, or tickets to the ‘must see’ hit play on Broadway, etc. etc. etc.

Living within our means requires making choices, setting priorities, doing ‘without’ some items so we can have the important things. Horror of horrors, that means - gosh - that people would have to actually grow up and act like 'adults. Us ‘boomers’ have been stuck somewhere between adolescence and adulthood our entire lives and those who followed have grown up in a world sorely lacking in adult role models. Sadly, our economy has become addicted to a population of eternal children but our piggy banks have now run way past empty. There will, I fear, be a lot of kicking and screaming before we stop playing at adulthood and actually reach it.


This documentary, "America: Freedom to Fascism" by Aaron Russo made in 2005 is very incisive in diagnosing the problem with letting the international bankers running this country behind the scene rather than by its people. It is 151 minutes in length, but it was time well spent!



Chris, I believe the explanation for the high "credit" card use at Macdonalds is actually a response to their acceptance of pinless debit card payment. I doubt that many people are really using credit to purchase food there. While I believe you are generally correct to point to the rise in consumer credit card debt as a sign of financial distress I think it would be perhaps more instructive to exclude debit card use (if this can be separated) and look specifically at late payments, defaults, and the amount of purchases that are not paid off at the end on the month - the rise in revolving debt.

they also grow the best pot on the planet and make the best hash …from what i hear.

In light of other financial news indicating that consumer spending had actually decreased in September, the cited increase in Credit Card use also struck a discordant note with me. Not having access to the numbers for September and October I cannot discount that use might have jumped to the degree noted by Mr. Mauldin, but I’d be very curious as to where the additional credit card usage was being applied and yet not show up in an increase in consumer purchases - and what this might indicate. (Cash advances to pay for rent or make mortgage payments perhaps? A reflection of a ‘very’ large increase in the unemployment figures that has yet to be reported?)

In any case - being the curious sort I decided to parse some of the numbers published by the Federal Reserve myself. In an effort to simplify the data analysis I chose to only pull the reported August numbers from each of the yearly reports published in October. Below are the resulting spreadsheet (I was unable to insert the associated graph for some reason):


G.19 (Consumer Credit numbers for August 200x from the October 200x Federal Reserve Statistical Release reports)
2000 2001 2002 2003 2004 2005 2006 2007 2008
Total 1485.3 1590.9 1730.2 1956 2037.9 2152.3 2351.9 2469.6 2577.3
Revolving 645.6 702.6 725.9 727.6 740.8 798 846 915.5 969
Nonrevolving 839.7 888.3 1004.3 1228.4 1297.1 1354.3 1505.9 1554.1 1608.3
%incease 7.1 8.8 13.1 4.2 5.6 9.3 5.0 4.4


Below are the monthly numbers for Dec’07 through Aug’08 - note that these show a ‘decrease’ from July to August and a flattening of the curve beginning in June of this year. (Its clearer if graphed - but for the months preceeding June the Total amount of credit was increasing at an approximate rate of 5% per annum. If this rate had been maintained beyond May then the August numbers would have been approximately $27 Billion higher than was actually reported.


Dec Jan Feb Mar Apr May Jun Jul Aug
Total 2519.5 2524.5 2539.7 2558.4 2564.9 2570.6 2586.3 2587.4 2577.3
Revolving 943.5 947.4 951.7 957.2 956.9 961.9 968.3 969.9 969
Nonrevolving 1576 1577.2 1588 1601.2 1608 1608.7 1618 1617.5 1608.3



Perhaps the drops or small increases from March to April and for July and August respectively were due to tax refunds and the stimulus funds being used to pay down revolving debt…

With enough of the population depressed you could have a drug-lead recovery. Awesome! </sarcasm>


Being a Gen-X who has felt the pressure to be as affluent as the boomers and yet never been able to get there, I’ve read a lot about how boomers have screwed over the next generations. But I just don’t get how the boomers ended up as you say, eternal adolescent. What was so different about them compared to previous generations?


We have screwed your generation, our generation and your kids kids generation.

Maenad - Because of the end of WW2 and the relative peace that followed technology and resource extraction boomed! The discovery of huge oil fields, the green revolution, the circuit board, etc…

All this meant a booming economy where everyone wanted to live the "american dream". To live in the suburbs, have a nice house, car and kids. Where everything you wanted was at your fingertips and new "toys" (read cars, gadgets, fashion) were being released continuously. In that sort of world wouldn’t you just be a big kid? :slight_smile:

Maenad - You ask a very good question. sOcks touched on some pertinent explanations for why the Boomer generation never had to grow up. I’ll attempt to expand upon them but caution you that I am not a social scientist and can only speak from personal observation and life experiences. For brevity, my answer will also contain some degree of exaggeration (but hopefully it will still retain a grain of truth)

Firstly - ‘our’ Parents were born immediately prior to, in the midst of, or immediatly after the Great Depression (henceforth likely to be referred to as GD I ). Some of our parents were involved in WWII or the Korean War (note that the ‘boomers’ span 18 years, from 1946 to 1964 so the experiences are not ‘identical’) Their parents, in turn, were adults during GD I and may even have felt the impact of WWI. The life experiences of our parents and grand parents, the impact of the War(s) and Depression upon their lives, engendered a strong desire to establish a better life for their children than the one that they had lived. We, of course, not having the ‘benefit’ of first hand experience in self-sacrifice, in shortages of basic goods and food stuffs, took the good life as a ‘given’. It was what it was, every year there would be more presents under the Christmas tree, every year the Turkey would be bigger at Thanksgiving, every year life would be "better". Thats how it had been since we were born - thats how it would ‘always’ be.

Secondly, we had ‘the TV’: A magical box through which we were cajoled into buying the latest whiz-bang gadgets. Little did we understand that the shows we enjoyed were merely wrappers for the commercials which were the true raison d’etre of the TV. Television provided a convenient vehicle for developing the ‘need’ to purchase items which we never would have known existed. A manufacturer didn’t need to print and mail millions of catalogs when the purchase of a TV advertisment would reach far more viewers (and in those days would actually be ‘watched’) Companies employed teams of psychologists to develop the most effective advertisements, they stroked our egos, they flattered us, they cajoled us, … without the grounding provided by a period of sacrifice in our lives we were ‘doomed’!

We also grew up in a time when there were far fewer people in America and we had barely tapped the resources in this great country, and thus, all things were possible. We could produce all the oil we needed from our own shores, this powered a great expansion in the use of automobile, the manufacuture of which provided countless jobs - not for simply assembling the vehicles themselves, but to mine the ore for steel and to run the steel mills. The oil fed the chemical industries which created the nylons, and plastics for the tires and dashboards, as well as provided the fertilizers, week killers and bug killers that provided a huge increase in food production. Everything was ‘golden’, but, of course - it was a mirage. We were simply lucky, lucky that we happened to be born at that time, but the cost was a delayed onset of maturity (some of my peers will bristle at that - but so be it).

Lest I leave you with a sense that I’m totally pessimistic about the future - I’ll simply say that I’m ‘somewhat’ but not totally pessimistic. I regret the time that has been lost but this is still a great country and we are in far better shape than most. We should have consumed less, we should have been more ‘respectful’ in our treatment of the natural resources with the eye towards protecting them for following generations. We ‘could’ have consumed half of what we did and lived just as comfortable a life - but we are where we are. This economic downturn provides an opportunity to change directions and I hope we do.


Thanks presentmoment,

This makes a nice companion DVD to Chris’ material. I wouldn’t want this to overshadow Chris’ work however - especially since this video already has seen some grassroots distribution (the link on Google mentions 3 million viewers). Perhaps it would be something to have ready to give away if someone has already seen Chris’ material and already has his DVD?

Speaking of giving away Chris’ DVD: perhaps a receptive source of viewers would be those at the local farmer’s market? I really like the angle of reaching out to people already concerned about the environment.

However since I only know of the 30 copies that Mike distributed in Australia (with Chris’ permission - this is obviously not the upcoming Nov 2008 release) I think it is safe to say that anywhere is a good start for distribution!

All the best,