With the economy still crumbling, the consumer credit has dropped enormously by $21.5 billion only in one month from June to July 2009. This is according to the the figures that were released by the Federal Reserve earlier this week. In July the US consumer credit totaled $2.49 trillion in June and decreased by 10% down to $2.47 trillion in July. This is the lowest consumer credit ever since 2006.
The huge decrease of consumer credit is because banks have raised their interest rates, canceled credit cards and also pulled back on credit lines. The souring economy, housing market and high number of defaults and delinquencies have forced banks to take these measures.
As with so many other forecasts by the Obama administration that went wrong, this drop in consumer credit was 5 times larger than they have forecast earlier. As the US economy depends largely on consumer credit (read: Americans being in debt!), this is means that the American people themselves will not be leading the US out of the recession. A senior economist at Moody’s Economy.com commented that the reason is because consumers are now focusing on repairing their own personal finances and therefore are remaining very cautious about their spending.
It is also expected that the revolving credit will plunge another 20% by the end of this year. But considering that so many forecasts have been too optimistic about the US economy, there may be a chance that the plunge will be even greater than that. Some time ago, the unemployment rate was projected to reach 10% by early next year. However, according to the government’s broader measure, known as the “U-6″ for its data classification, as Ron Paul referres, unemployment rate has already hit 16.8% in August.
The facts that the unemployment rate is that high and a decline in household wealth cast great doubt on the strength of the recovery from the worst economic slump since the 1930s. There is great uncertainty expressed in the Federal Reserve policy makers about the projected pace of gains in spending by households.
Of course Obama’s stimulus packages such as “cash for clunkers” have boost up the credit line covering car loans temporarily but the program was not enough. There were some car purchases and the economy will see some short-term benefit, but since the program has ended, it will not be enough to make the year.
Although many say that the US recovery has already begun, the facts that figures are continuously plunging are proving otherwise. If the unemployment rate and the foreclosure rate are high and increasing, people stop spending and no money is circulating, then what is left for America to recover?
It seems that the dark and pessimistic forecast by economists such as Gerald Celente who forecast a deeper and longer economic recession in the US is actually coming to pass.
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