Consumer credit from Z.1 December 10, 2009

There was a post I had written below which has disappeared.  I will try and reconstruct the contents here.  Maybe clarify ideas even further.

What would it profit anyone to create a debt slave?  In other words why do credit card companies lend to poor credit risks?  Let me try and remember the 4 C’s of lending.  Character, Capacity, Collateral and Capital.  Lending to someone who has no capacity to repay is poor lending.  Not prudent.

And Z.1 tells us credit card lending has been contracting.  Let us now look at Z.1.  This will update the data since the last post (the one that vanished).  That was only till September 17, 2009.  This will quote from the December 19, 2009 release.

D.2 Borrowing by Sector  (billions of dollars; quarterly figures are seasonally adjusted annual rates)
  Consumer credit
2007Q1 125.0
2007Q2 132.4
2007Q3 172.9
2007Q4 117.3
2008Q1 115.0
2008Q2 105.4
2008Q3 16.6
2008Q4 -76.4
2009Q1 -88.7
2009Q2 -120.8
2009Q3 -81.6


So: consumer credit has been contracting (always remembering that the negative figures above indicate a reduction in the stock of debt.)  People have been paying back their credit card debt.  Or companies have not been extending new credit.

My realization here is that credit card lending adds directly to aggregate demand for the products of the consumer goods sector.  Thus bolstering profits in those sectors.


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