US Person showed you in the last Chart of the Week posted on Saturday, that the decade of the 2000s was a bust from the standpoint of civilian employment among other things. When consumers are not employed two things happen: the government collects less tax revenue, and consumers stop discretionary spending which in our leveraged economy means using less credit. The following charts from
Martket Ticker clearly show de-leveraging is taking place and is far from over:
The first chart is a historical perspective. Growth in the amount of consumer debt since 1960 has always been positive except for a brief dip below zero in the early 90's. Prior to now, consumer credit has never contracted below -2%.
This chart shows the growth in consumer credit peaked in 2007 and is contracting especially for credit card debt (revolving) which is accelerating and approaching -10%. Consumer credit has contracted for a record ten months in a row. But the amount of de-leveraging (4.5%) has a long way to go in absolute terms as shown in the final graph. How you can create economic expansion without consumer spending is a trick that would interest even Ben 'Bubbles' Bernanke*.
*Two of the economists Bernanke cites for his denial that a low central bank rate [the real rate was actually negative for 40% of the relevant period] contributed to the housing bubble—Frank Smets, director of research at the European Central Bank, and his colleague Marek Jarocinski—reported in the July/August issue of the St. Louis Fed Review that "monetary policy has significant effects on housing investment and house prices and that easy monetary policy designed to stave off perceived risks of deflation in 2002-04 has contributed to the boom in the housing market in 2004 and 2005." See Prof. Taylor's critique of the Fed Chairman's January 3rd speech in the online Wall Street Journal.
