What happens if consumer debt > M1 money supply?

[dividend]

Hello. What happens when consumer credit outstanding is larger than M1 money supply? When I look at the Fed data it shows that "consumer credit outstanding is about 2.5 trillion but M1 is only about 1.4 trillion. (I hope I read these figures correctly.)

I use M1 because I would think that M1 is the more significant measure (instead of M2 or M3) because M2 includes CDs (certificate of deposits) and other large moneys. My figuring is that people with outstanding "consumer credit" do not usually possess CDs or large denominations of money. Therefore M1 (cash, coins, and checking deposits) is most significant.

What does this mean? Does it mean that unless the M1 money supply is "inflated" to 2.5 trillion then there is effectively zero chance that these debts can be paid off? Or perhaps I should be thinking in terms of a different money supply?


money supply:
http://www.federalreserve.gov/releases/h6/current/default.htm
consumer credit:
http://www.federalreserve.gov/releases/g19/current/default.htm

 

[daddyeaux]

I think this chart is more insightful for your question......

two choices for debt...1) default and/or 2) print more money

review the S. American debt crisis for the usual outcomes

 

[sjfan]

You are assuming (rightly or wrongly) that consumer wealth can't grow. Consider the extreme case in which consumer wealth doubles every year. In that case, the debt is easily serviced.

 

[daddyeaux]

consumer savings are currently negative while debt is growing parabolic .....

I will assume it ends badly

 

[sjfan]

.... um... to service the debt we don't require positive savings, just positive income growth.

 

[daddyeaux]

yep ...true...but consumer income is not growing parabolic

to see what shape the consumer is in is to look at how much is saved, and it aint a pretty picture

 

[sjfan]

I don't think you mean parabolic. I think you mean exponential. But fine - I get what you mean.

I don't think it'll be a disaster. Consumer debt is not concentrated on the lending side. They are securitized. A few hedge funds might blow up, but so be it.

 

[daddyeaux]

poor dividend's thread got hijacked....

bottom line is as a society, we're financing our lifestyle using borrowed foreign cash....

happy hour is nearing an end....

 

[Bongo972]

Yeah but what does it really mean?

 

[fearless9]

Quote from daddyeaux:

poor dividend's thread got hijacked....

bottom line is as a society, we're financing our lifestyle using borrowed foreign cash....

happy hour is nearing an end....

The money is not so much borrowed as invested.
It leaves the fed, is transferred to other countries as payment for goods and they must eventually reinvest it or see it deflated away.

Savings are now not measured in cash in the US but rather in excess real estate value which is accessed as an ATM.

It all requires a new point of view in order to exist in this brave new world created and run by the money creators.