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Registered Investment Adviser Caleb Lawrence 

The major averages enter the final hour about even on little news. Consumer credit came out late yesterday, it missed expectations with a 12.4 billion Dollar gain in June. Revolving or credit card debt advanced 5%, non-revolving debt, essentially student and auto loans gained 3.6%. Like the major averages of late credit card, student and auto loan debt all hit new record highs.

Despite the record consumer debt levels considerable ink has been spilled on the subject of anemic lending by the banks and such in the post crisis period. Some have blamed the higher bank capital requirements, others have fingered the leveraged share buybacks and heightened dividend payouts seen in the post crisis period as per a recent FDIC or Federal Deposit Insurance Corporation letter on the subject. The common theme with all of these excuses for a lack of lending are curiously one sided looking only at supply, as none take into consideration the demand side of the equation. Even today real estate transactions are a shadow of their former selves, something reflected in the homeownership statistics and sales. Business formation has fallen steadily to record lows in the post crisis period. Household formation has followed a similar path. It is well documented from a historical perspective that credit busts are inherently deflationary, the 2007-2009 financial crisis was a credit bust, an idea studiously avoided by the lamestream media. That cheers the official unemployment data at every opportunity and largely ignores 30-odd years of falling real wages. A trend that led to a failed attempt by your average American to maintain its standard of living with debt prior to the 2007-2009 financial crisis, and the pundits wonder why loan demand is weak.


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