from an investor BBS ...
has a September Consumer Crush update (registration required).
(snip)“Our Consumer Cash Flow model [described in their original Consumer Crunch paper] continues to track the consumer “liquidity drain.” In the depth of the 1990/1991 recession, our preferred measure of consumer liquidity had fallen 10 days from 60 days during most of 1987 to 50 days in January, 1991. It ultimately recovered to 59 days in January, 1994. Our measure is barely above 19 days and is still falling."(snip)
During the week of September 10, demand deposits [i.e. savings / checking / money market accounts - sic] declined to the lowest nominal level since early 1986. In the following week, they achieved the 12th lowest level since the end of 1986. This occurrence is intellectually awesome and economically frightening! Effectively, it means that U.S. households used ALL of their available funds in early September.”
this 'preferred measure of consumer liquidity' undoubtedly relates the balances in consumer demand deposit accounts versus average / necessary cash flows. Thus the 50 day measure of 1991 implied that consumers had enough money in their savings / checking / money market accounts to cover 50 days worth of average / necessary spending. That measure has now fallen such that consumers now only have enough money in their savings / checking / money market accounts to cover 19 days worth of bills, and the measure is still falling !
which comes on the heels of this ...
(snip)"WASHINGTON (MarketWatch) -- Outstanding U.S. consumer debt rose at an annual rate of 5.9% in August, pushed higher mostly by a hefty gain in credit-card debt, the Federal Reserve reported Friday. The overall increase of $12.2 billion was the highest since May, the Fed reported. It pushed total outstanding consumer credit to $2.47 trillion in August, up from $2.46 trillion in July.
Outstanding consumer credit rose by an upwardly revised 4.7% in July. It was originally estimated to rise by 3.7%. August's data captures the impact of turmoil in financial markets that month, noted Ryan Sweet of Moody's Economy.com. "They provide further evidence that consumers did not pack it in following the events," he wrote in an email.
Revolving debt such as credit cards was the biggest driver behind the overall rise in August, the data show. That debt climbed by 8.1% in August, or by $6.1 billion. In July, credit-card debt rose by a revised 7.4%.
Auto, student, personal and other forms of non-revolving debt climbed at an annual rate of 4.7%, or $6 billion, in August. In July it rose by a revised 3.1%. "(snip)
the greater implication is of course that consumers have already maxxed out whatever opportunities existed to extract cash from home equity via refis and HE (and have already spent it). This was followed by consumers then maxxing out whatever credit lines existed on their credit card accounts (and have now spent this as well). Having run out of additional sources of credit, consumers then began liquidating and 'spending' their assets ... to the point where the former assets in bank accounts have now been spent as well.
arguably, the only remaining 'assets' still in the hands of consumers are their gov't approved retirement accounts 401k's / IRAs ... which are exempt from bankruptcy proceedings under current law ... and any stocks / bonds / CD's, which are not exempt. Thus with home equity loans having dried up, with credit cards having been maxxed out, and with bank accounts having been emptied, the next thing in the progression will be selloffs of longer term assets i.e. stocks and bonds.
~



Reply With Quote
Bookmarks