The de-leveraging of the Consumer

The chart above is that of Total Consumer Credit Outstanding(TCCO).


The chart above is that of Commercial & Industrial loans (CIL).

Notice the exponential growth of debt in both the consumer and
the corporate sector.


The chart above is that of TCCO expressed as percentage of
Personal Consumption. It shows how more debt has been incurred
per unit of consumption.
Notice the recent increase to its highest level and subsequent
drop. This level, in my view, will prove to be the culmination
of relative borrowing capacity. The housing market has been well
documented, as a huge contributing factor to the over-extension
in consumer debt.

I explained here how, for the first time in decades, the relative
consumption in durable goods was declining as wages were accelerating.
This is symptomatic of a change in consumption behavior and
this change reaffirms the notion of a limited borrowing capacity.



The chart above is that of GDP divided by Commercial & Industrial loans.
It is reasonable to expect the corporate sector to use leverage in
order to participate in a growing economy. When the ratio
depicted on the chart is rising, borrowers are getting more bang
for the buck. Conversely, a decreasing ratio may question the
need for a loan. Note that GDP/CIL is currently declining.


The chart above is that of the ratio of TCCO to CIL since 1959.
Notice how the ratio climbed to unprecedented levels and is now
declining. This clearly shows how in a society permeated by debt,
the consumer deserves the ignoble title of most reckless.

To bring this ratio to a more "normal" level will take time and
will certainly be deleterious to the economy.
Does credit crunch come to mind?
The de-leveraging of the consumer is now
taking place. The corporate sector will follow.

For Monday (8/20) the Up/Down Indicator = .55 suggesting
a positive bias for the Stock Market. This daily indicator
has been accurate 58% of the time.

The Interval = 6 S&P points.