The Federal Government's Big Influence on Consumer Credit

If you follow consumer credit, then you know it's been steadily declining since late 2008. But if you follow it really closely, then you also know that the federal government has been increasing its holdings of consumer debt, while other holders like banks and finance companies have been shrinking their exposures. If you combine these two trends, then you might hypothesize that consumer credit would have fallen even further without the government's support. You would be right.

So just how much has the government influenced consumer credit recently? Here's a chart that helps:

govt consumer credit 2010-08.png

The red line is total consumer credit, while the green one shows the same statistic if federal government holdings are taken out of the equation. You can see how much the variance between the two lines widens starting in 2008, but it really begins to grow in 2009. In January 2007, government holdings were just $95 billion. In June 2010, its share grew to $223 billion. That's a 134% increase over those 41 months, which results a 39.3% average gain per year.

But as mentioned, the real growth began in 2009. Here's another chart showing how total credit fell, compared to total credit less the federal government's share:

govt consumer credit decline 2010-08.png

You can see that, since December 2008, total credit has fallen by 7.4%. But without the government's support, it would have fallen by 12.3%. Over that 18-month time period the federal government consumer credit holdings have grown by 101%. That's an annualized rate of 67.0%.

This data shows a few things. First, the government has been very aggressive in its efforts to ramp up its consumer credit holdings since the recession. Second, without that support, credit would have shrunk far more.

In fact, since the government's holdings are isolated to non-revolving debt, it makes sense that total revolving debt has declined so much more than non-revolving over this time period. The government is the holder of obligations like mortgages student loans, but not credit cards. Since the financial crisis began in 2008, total revolving credit has declined by 15.3%, while total non-revolving debt has fallen by just 0.7%. Without the government's influence, however, non-revolving debt would have fallen by 8.5%. That's not as much as revolving, but it's still a much more substantial drop.

Note: These statistics are largely unadjusted, since the Fed does not seasonally adjust its statistics for holders of credit.