- The chart indicates that consumer credit is reduced during recessions. One could surmise that this is due to belt tightening in tougher times with consumer sentiment being generally negative during uncertain economic times,versus taking on additional debt in time of aplenty.
- Consumer credit has decreased in eight of the past nine months (as of June 2009, according to the Federal Reserve, a privately-held entity that I consider to be a racket).
- Around 70% of the GDP is driven by consumer spending.
- In a time of stagnating (or declining) wages, money is spent on debt reduction, or buying shiny wheels for their SUVs or flat-screen televisions or vacations to Wally World, but not both.
- As easy credit has a tendency to inflate asset prices, the opposite would logically hold true that tight credit will deflate asset prices, especially in the extreme sense that we've seen easy credit for years while suddenly credit on all levels extended to anyone (other than the federal government) is virtually non-existent.
- Although deflation is caused by tightened credit, once the other component of inflation is the need for the US to effectively peddle its increasingly risky debt to foreign entties by increasing the interest rates on it debt instruments. Also, deflation will be offset by the increasing demand of raw materials by emerging economies Consequently, deflation will be distorted by this tug-of-war.
Just some meanderings from my home office on a sunny morning in Bellingham, although some clouds are rolling in for an afternoon shower.