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Revolving Debt Crashes Most In Four Years, As Student, Car Loans Go Exponential; Bank Lending Freezes

There was only bad news in the just released Fed consumer credit report for the month of February.

First, the "good credit", the one that consumer should load up on when they feel comfortable about the future, i.e., credit card, or revolving debt, continued its recent plunge, and in February crashed by $3.7 billion, following January's $1 billion plunge. This was the worst month for revolving credit since December 2010 and explains perfectly why the consumer has literally gone into hibernation - it has nothing to do with the weather, and everything to do with the unwillingness to "charge" purchases, which in turn is a clear glimpse into how the US consumer sees their financial and economic future.

This plunge, however, was more than offset by a surge in "bad" credit, the type that even Obama wants to do away with, namely non-revolving credit, mostly student and to a lesser extent auto credit. In February, this debt funded almost exclusively by the US government, soared by $19.2 billion, the highest monthly notional since July 2011!

 

Here is the combined big picture:

 

And while we will never tire of watching just how exponential this non-revolving credit chart has gotten, here it is again, for any non-frequent readers. Truly a thing of beauty.

 

But all of the above was largely to be expected: it merely accelerated the unsustainable trends we have grown to love and expect from the centrally-planned economy.

What was by far the worst data, however, was when one drills down into the source of credit. It will surprise nobody to learn that for one more month, the source of debt to the US consumer was Uncle Sam himself. However, what is a big, red flag is the complete collapse in depository institutions lending: the $18.8 billion drop in bank lending was a shock to all, follows the $15.2 billion drop last month, and is the single biggest monthly drop since January 2011.

In other words, banks, which had resumed lending for a few months, have slammed the door shut on all new credit issuance, which means one things: instead of lending, the big banks are back to their old tricks to make money: prop trading the S&P and otherwise manipulating markets as only they can do (ref: see the JPM London Whale).

The good news is that we finally have an answer to a question we posed two weeks ago, namely whether the Fed is still fabricating loan creation data, on its H.8 statement.