money supply and Credit Cards

[rbroome]

There has been a lot of concern about the huge federal deficits in the US. Over a trillion dollars in one year if I remember. I have a question. Is the money supply defined as the amount of cash and disposable or usable credit? If so, I note an article in the NYTimes that says:
"In the 12 months that ended in September, the number of Visa, MasterCard, American Express and Discover card accounts in the United States fell by 72 million, according to David Robertson, publisher of The Nilson Report, an industry newsletter. There are 555 million accounts still in the marketplace, he said.

In roughly the same time period, banks lowered credit limits by 26 percent, to $3.4 trillion, from $4.6 trillion, according to an analysis of government data by Foresight Analytics."

The article is talking about higher rates and fees for credit cards. I am interested in the last comment they made. Credit Card companies in the last 12 months have drawn down the disposable credit by 1 trillion $. Shouldn’t that be considered an offset to the federal deficit at least in macroeconomic terms?

In general, at the same time government are running huge deficits, private credit sources are shrinking their credit lines. Do these two events counter one another?
Thanks for any explanations people can give.

[Measure_for_Measure]

@rbroome

Is the money supply defined as the amount of cash and disposable or usable credit?

No. M2 consists of cash, checking and savings account balances, CDs in small amounts and money market fund balances.

In roughly the same time period, banks lowered credit limits by 26 percent, to $3.4 trillion, from $4.6 trillion, according to an analysis of government data by Foresight Analytics."

The article is talking about higher rates and fees for credit cards. I am interested in the last comment they made. Credit Card companies in the last 12 months have drawn down the disposable credit by 1 trillion $. Shouldn’t that be considered an offset to the federal deficit at least in macroeconomic terms?

I don’t see how.

When private savings goes up, private consumption goes down by definition. If the federal government’s budget deficit rises during the same time, that will tend to lessen the recession, as total demand for goods and services doesn’t decline so much. But that’s a separate argument.

In general, at the same time government are running huge deficits, private credit sources are shrinking their credit lines. Do these two events counter one another?

Well credit lines represent an option to borrow, so this is a bit of an apples and oranges comparison. But yes, you seem to have at least a rough sense of countercyclical deficit spending.