Rodney Johnson, of HS Dent Investments, says The Slow Contraction of Credit Continues:
From both sides of the fence – credit demanded and credit extended – we are witnessing a contraction.Â This is NOT a slowdown; this is not a case of slower growth.Â We are in the midst of a true reduction in the amount of credit outstanding.Â This is going on in conjuction with declining employment opportunities and reduced hours worked (33 hrs per week, continuing to be the lowest on record).Â As I wrote in the HS Dent Economic Forecast in July 2009, we are moving to a world that as marked by less, and it is tied toÂ our ability and desire to purchase.
The Federal Reserve Flow of Funds report shows a contraction of consumer credit of $122 billion so far for the year, or a reduction of 4.75%. Consumer credit outstanding has been contracting for eight consecutive months, which is a record.Â People truly are paying down debts.
As the noose closes, it will have an impact.Â We will choke off even more of the economic activity.Â Keep in mind, this does not in any way mean that economic activity will stop.Â We are not saying and have never said that things go to zero.Â Itâ€™s just a period marked by â€œlessâ€ as we go through an extended bout of private debt deflation.
Mr. Johnson points out what many in the mainstream media fail to address. No matter how high the stock market goes, no matter how much money The Fed prints, and no matter how many tax credits for cars and houses the government gives out, the average American consumer is spending less than they were just a year ago, and significantly less than they were spending 3 years ago.
Why? Because we are losing jobs by the tens of thousands every month. Banks are refusing to lend to consumers, and when they do lend, they charge interest rates of around 30%. While consumers will always spend money on essential goods and even non-essentials, Americans have had a wake-up call. They are saving more money now, paying off debts and are spending less money on crap they don’t need.
This is a real live credit contraction – the kind that has led to the end of many a civilization. In fact, this is the largest credit contraction in the history of the world, and you, me and everyone else just happen to be in the middle of it!
This is very bad news for retailers going in to the Holiday season. Don’t be surprised if you see lower retail sales numbers this year compared to last (which was a horrible season, by the way).
As was pointed out recently in Christmas Crash – Get Ready for the Collapse to Come Very Quickly, Trends Research forecaster Gerald Celente expects a similar effect this holiday season.