Consumer credit plunges most in history
"Borrowing by U.S. consumers unexpectedly fell in August by the most on record as banks shut off access to loans, a report from the Federal Reserve showed.
"Consumer credit fell by $7.9 billion, the most since statistics began in 1943, to $2.58 trillion, the Fed said today in Washington. In July, credit rose by $5.2 billion, previously reported as a $4.6 billion gain. The Fed's report doesn't cover borrowing secured by real estate.
"Consumer spending, the biggest part of the economy, is likely to keep faltering as banks hoard cash, job losses mount and property values drop. The decline in borrowing underscores why Fed policy makers today announced they will create a special fund to purchase commercial paper in a bid to open the flow of credit to the nation's businesses.
"This is what happens when consumers are fearful and banks tighten lending standards to all applicants," said Richard Yamarone, chief economist at Argus Research in New York. "No one borrows, no one lends. It's a classic example of a frozen credit channel."
"Economists forecast an increase of $5 billion in consumer credit during August, according to the median of 29 estimates in a survey conducted by Bloomberg News.
"According to the Fed, total consumer borrowing dropped at a 4.3 percent annual rate in August, the most since January 1998, during the Asian financial crisis.
"Revolving debt such as credit cards decreased by $612 million during August and non-revolving debt, including auto loans, dropped by $7.3 billion."