Great article in FT Alphaville today. It addresses the question at the core of DebtRevulsion. When the governments worldwide push banks into lending - will the consumer still want to borrow. Answers are beginning to emerge.

Consumer credit contracts.

 Consumer credit fell by a net £0.3 billion, below the previous six‑month average (Table A).  Credit card lending increased by a net £0.2 billion and other loans and advances fell by £0.5 billion. The annual growth rate of consumer credit continued to fall, to 0.7%.

August lending stats out today from the BoE.
Whilst most of the headlines reflect the contraction in mortgage lending there is more to be found in the details of Consumer Credit - which is now contracting. Graphs to follow.

Ed from Credit Writedowns reminds us that national income alone does not provide a full snapshot on the well being of the economy.

GDP is an inadequate measure for understanding how healthy an economy is. Nobel Prize-winning economist Joseph Stiglitz brought this issue into the public domain last week when he spoke in Paris, calling the focus on GDP a ‘fetish’ and favoring a broader measure of economic health.

Stiglitz was responding to reporters after a study on alternative measures of economic growth commissioned by French president Nicholas Sarkozy was released. At the time, Bloomberg reported Stiglitz saying

:

GDP has increasingly become used as a measure of societal well-being and changes in the structure of the economy and our society have made it increasingly poor one…

So many things that are important to individuals are not included in GDP. There needs to be an array of numbers but we need to understand the role of each number. We may not be able to aggregate everything together.

Stiglitz is talking about the social costs of growth here. Think about pollution, infant mortality rate, healthcare, life expectancy, or rates of obesity to name a few. And his views are echoed in an article which prompted this tirade from me called “Emphasis on Growth Is Called Misguided" by Peter Goodman in [the] New York Times. Read it.

However, in this (go here to read it) post, I want to focus on one narrow issue: debt.

Ignoring the massive spike in government related debt (Federal, State, AND Local) for the time being and focusing instead on household liabilities as a percent of the national income, we see mortgage debt is now at 70% of GDP (more than double the level seen in the 1980's and 50% more than that seen at the beginning of this decade) and consumer debt is now at 18% of GDP.

The importance of all this is of course that all that debt that has been added over the years has been a huge contributor to that GDP. The fear is that the debt has just pulled a lot of consumption forward rather than infrastructure or other long term investments that will provide future growth opportunities.

Source: BEA / Federal Reserve

All you need to know.....

But in a striking development in July, UK households paid back more debt than they took out for the first time since the Bank of England started collecting data 16 years earlier.

So why did this mood swing happen? Have we all suddenly become a nation of worthy savers?

Late to he party again. The BBC asking why one might want to save. No mention of fear of unemployment at all. Fear and debt revulsion is why we are saving more. The consumer is worn out with debt.

Hoping for a consumer-led recovery? Don't hold your breath. The latest data from the Federal Reserve shows that the year-over-year decline in total consumer credit is collapsing at an accelerating rate. God forbid consumers go back to living within their means.

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Personal debt dips for first time

The total amount of personal debt in the UK has fallen for the first time since records began in 1993, the Bank of England has said.

A sure sign that the consumer is not being lured into further debt. The government is now doing that for them.