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Record Plunge in U.S. Consumer Credit in July

Articles & Blogs - US Commentary

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It is no secret that the U.S. has a consumer economy. More than 2/3 of GDP is directly derived from consumer spending. The staggering numbers in the weekly. U.S. lay-offs report shows that the U.S. economy is shedding jobs at a Depression-like rate. Meanwhile, the monthly jobs report from the Bureau of Labor Statistics tells us nothing, since those manipulated numbers have no connection with the real world.

As I wrote two days ago (see “The Myth of the Job-less Recovery”), there is no such thing as a “job-less recovery”. The U.S. economy has been able to imitate an “economic recovery” in previous downturns, through the success of its propaganda-machine in inducing U.S. consumers to take on more debt – and create the illusion of economic growth through excessive borrowing-and-spending. Similarly, if I was to lose my job, but manage to borrow a million dollars, I could certainly demonstrate the appearance of affluence to my neighbours.

With over $57 trillion in total public and private debt, those days are over in the United States. With a crescendo of talking-heads proclaiming that a “U.S. recovery” has already started, recent reports of U.S. consumer credit show that this claim is nothing short of absurd.

Total U.S. consumer credit plunged by $21.4 billion in July alone – the biggest drop on record, and the sixth, consecutive monthly decline. Meanwhile, the plunge in consumer credit in June was revised 50% higher from over $10 billion to over $15 billion. At the same time, according to BNN, a survey of U.S. banks shows that 1/3 are planning further tightening of their lending standards, and none are planning on loosening credit.

It is one more sign that consumers are not going to be contributing much to the economy for the balance of the year and probably for a good part of next year,” said Bernard Baumohl, chief economist for The Economic Outlook Group, at Princeton. This is a gross understatement.

In fact, U.S. consumers are contributing nothing to the U.S economy. Consumer spending has fallen over the last year, and “real” consumer spending (i.e. spending adjusted for inflation) has been falling every month this year – even with an endless string of retail “sales” and gimmicks like the “Cash-for-Clunkers” program.

I already pointed out in my previous commentary that no economy can have real, economic growth without job-creation accompanying it. Yet the U.S. propaganda-machine claims to have a legion of (anonymous) “experts” all in agreement that a “job-less recovery” has begun.

With vast numbers of jobs being lost, and the amount of credit available to Americans collapsing at the greatest rate in history (and with U.S. banks planning further cuts in credit), there is zero possibility of any real growth in U.S. consumer spending.

So what will we hear next from the propaganda-machine's “experts”? Is the U.S. consumer economy about to experience a “job-less and consumer-less recovery”?

At some point, the sheer lunacy of what these “experts” are trying to get us to swallow must trigger an inevitable “gag” reflex. Keep in mind that this is the same group of experts who were “surprised” at the bursting of the U.S. housing-bubble (the biggest asset-bubble in human history). For the contrarians out there, the simple fact that all these “experts” are predicting a U.S. recovery is the most certain evidence that the U.S. economy is about to start its next leg down.

As many other commentators have observed, during the (first) “Great Depression”, the U.S. economy did not experience a decade of steady, economic deterioration. Instead, that depression marked the most dramatic “roller-coaster” ride it has ever experienced (until the current collapse). Severe plunges were marked with sharp reversals – where on several occasions there were genuine periods of positive economic activity.

However, the overall, downward momentum of the economy overwhelmed these positive surges again and again, with the result being a decade of serious, economic decay. Arguably, the brief upward surges were just as damaging as the downward moves – since millions were duped into believing that “the worst is over” (something we hear currently on a near-daily basis).

In contrast, there has been no positive economic activity in the U.S. in this Depression, merely some less-bad declines. However, these “improvements” (as with the BLS's jobs report) are heavily contrived in one manner or another.

For instance, the “experts” have been duped into believing that the U.S. housing sector has “bottomed”, and the inventories of unsold homes are “declining”. This has been accomplished through nothing more than U.S. banks deliberately keeping millions of already-foreclosed/repossessed homes off the market – a totally artificial (and obviously temporary) reduction in supply.

As I pointed out in “Delinquent U.S. mortgages break record AGAIN”, the U.S. is on pace for more than 4 million foreclosures/repossessions this year alone, yet U.S. banks are on pace to sell less than 2 million foreclosed/properties this year. How reliable are any “experts” if they can be duped by maneuvers as simple and obvious as this?

Thus, the U.S. has a consumer economy which is lacking both employment income and credit amongst its consumers. At the same time, a group of thoroughly discredited, economic-charlatans are all predicting an “economic recovery”. You don't need to be an “expert” to see where the U.S. economy is headed.

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