Deflation?

Source: Fund My Mutual Fund

Consumer Credit Tumbles at a 10% Annualized Pace (THIS IS DEFLATION!!!!)

Just some amazing statistics out of the Fed late this afternoon in consumer credit - and it doesn't bode well (near to intermediate term) for the 70% of the economy that is based on "spending". It does bode well for the long run as Americans actually act rationale and try to shed debt. Part of this data set is due to financial institutions pulling back on credit, but much of it is the reality that many Americans have enough stuff and need to delever. After 25 years of debt accumulation at which point anyone who doubted the American consumer was made a fool, the average domestic shopper has finally been "scared straight" if you will. This was finally the turning point where they have seen what little cushion they truly have when times get rough. As I've been saying for 2+ years, without a house ATM to provide a secret piggy bank, consumption patterns will change significantly for many.

If you are a stock market perma bull this is where you note each month Americans pullback buying "stuff" is laying the groundwork for the massive "pent up demand" that is coming "around the corner". I will repeat what I say each time this argument is brought up - you can wish ("demand") anything you want, but you need to have the ability to pay for it.*

*note: that was in the old economy; in the new economy the government helps to pay for it - so the ability to actually pay is not such a hurdle.

"As great as the clunkers program has been, it's tough to head out and buy a big ticket item when you don't have a job," said Richard Yamarone, economist at Argus Research. "Don't expect consumer credit to increase any time soon; the job situation is dismal, at best."

Long story short - even with the government handing us money to buy cars and homes (real estate is NOT covered in this report) we are seeing record setting % drops in credit. Keep in mind the tail end of July was the beginning of cash for clunkers - which means even with government handing us money to layer on debt to buy new cars, non revolving debt levels STILL contracted at a dramatic rate. And par for the course, June's data was revised downward - notice almost every government report is announced with great fanfare as "better than expected", than quietly revised downward 30-60 days later ... it is called "managing the market".

Nice Chart by Evil Speculator

THIS IS DEFLATION!!!!