Friday, February 20, 2009

No shortage of money (9)

Inspired by a recent post from Mark Perry, I put together this chart which solidly refutes the popular notion that banks are refusing to lend to consumers, thus condemning the economy to a slow but certain death. While the 10% growth rate of loans over the past year isn't the fastest we've seen (which was just over 20% in the late 1970s), it is much faster than the average growth rate in loans over the past 18 years, as this chart shows. And as Mark notes, the growth rate of consumer loans has actually slowed down in every single one of the recessions—except for this one—we've had since the Fed began keeping records on this in 1950.

This is not your typical recession, as I've noted repeatedly. The implication of all this is that the economy can bounce back from this recession a lot faster than most people are prepared to believe.


Public Library said...

Doesn't it seem like people are using their credit of last resort? Even high quality borrowers delinquency rates are starting to rise to historical levels.

I am not sure this all bodes well for the future?


Mark A. Sadowski said...

We don't have equivalent data from the Great Depression (or the Panic of 1893 or the Panic of 1873). Obviously this is a unique recession from that standpoint.

Scott Grannis said...

And financial markets have changed so significantly that even if had data it would not be very meaningful. But in any event I don't think the vast majority of people are overextended.

Cabodog said...


What are your thoughts then on the problems that American Express is experiencing with delinquencies? I guess it's to be expected in any recession, but I wonder if they are experiencing record amounts of delinquencies.

Donny Baseball said...

American Expresses delinquecies are a funny animal. They are not necessarily a barometer of the broader economy. An Amex card has traditonally a luxury product and while the credit cad has gotten commoditized, Amex has done yeoman's work keeping the loyalty of the high end consumer and the merely rich to ultra rich. Problem is there isn't alot of growth in that. They've tackled this problem in a variety of ways, but what they are best at, is still catering to rich folks, so in expansionary times, they get growth by grabbing the low hanging fruit of the "newly rich". There have been countless newly rich people generated in the last few years who only recently made their money and were able to afford "membership". Many of those folks are now busted and stiffing Amex. The same thing played out during the Internet bubble, all these high flying dot coms outfitted their execs with Amex corp cards and Amex got stiffed when many went bust. The moral of the story is that Amex's delinquencies are the barometer of the formerly newly rich and sometimes the formerly just rich (how many Madoff victims were big Platinum Amex cardholders? probably alot). Amex cardholder growth is a barometer of boom times and Amex delinquencies are the product of busts among the recently successful. Don't look to Amex to tell you what is going on on Main Street.