Analysts were shocked to learn that consumer credit fell by $21.6 billion when they were looking for only a $4 billion dollar drop.

Consumer credit outstanding fell at a 10.4% rate in July to $2.47 trillion. In June, total credit tumbled $15.5 billion, again topping estimates. Analysts had expected a drop of $10.3 billion.

Nonrevolving credit, which includes loans for big ticket items like cars, boats, college education, and holidays, plunged a record $15.5 billion or at an 11.7% rate to $1.6 trillion.

Consumer bankruptcies have already spiked more than 30% this year, and it looks like the trend shows no signs of flagging. The American Bankruptcy Institute predicts that the tally could hit 1.4 million by the end of the year. So, although there are some experts signaling that the economy is on the upswing, the downstream effects of bankruptcy on consumer spending and corporate balance sheets are going to make it difficult for the market to turn the corner.

In July, more than 126,000 people filed for bankruptcy protection, and the filing rate was up 36.5% for the first six months of 2009 relative to the same period in 2008. The problem is affecting every rung of the social ladder.

For the fifth month in a row, consumers paid down their credit cards and other debt, as the worldwide recession continues to drive conservative financial behavior.

According to the Federal Reserve, outstanding consumer debt fell $10.3 billion (4.9%) to $2.5 trillion in June. Analysts expected a decline of only $4.7 billion, making the plunge unexpected -- and nearly twice the $5.4 billion by which consumer debt fell in May.

The second half of the calendar year has begun, and earnings return to the spotlight this week. As usual, Alcoa Inc. (NYSE: AA) is among the first of the S&P 500 to report quarterly results. For the second quarter in which Alcoa agreed to sell its wire harness and electrical distribution business and its fastening systems business expanded into Morocco, analysts surveyed by Thomson Reuters expect the New York-based aluminum producer to report swinging to a net loss of $0.34 per share from a profit of $0.66 per share in the year-ago period. Second quarter revenue is expected to have fallen 48.3% to $3.9 billion. The full-year forecast is currently for a loss of $1.04 per share and revenue of $16.7 billion (-38.0%). Alcoa has missed expectations in the past three quarters, by as much as 17 cents per share. The long-term EPS growth forecast is 10.0%, which is better than the sector average. Alcoa slashed its dividend earlier this year, and the First Call consensus recommendation remains to hold AA. However, TheStreet.com recommends it as an against-the-grain pick. At $9.86, shares are down 12.4% since the beginning of the year, and recently have been bumping up against the 200-day moving average.

A new earnings reporting season kicks off this coming week with the quarterly report from Alcoa, the first Dow Jones industrial to report. But investors looking for early signs about the first quarter will be disappointed in what they see from the aluminum producer, assuming that analysts surveyed by Thomson Reuters are neither too optimistic or too pessimistic about those results.

Here's a look at what's on the economic calendar for the week of January 5, 2009:

• Construction spending (Nov. 2008): Monday, 10:00 AM
• Ford Motor Co. U.S. sales (Dec. 2008): Monday, 1:00 PM
• New motor vehicle sales (Dec. 2008): Monday, 4:00 PM
• Factory orders (Nov. 2008): Tuesday, 10:00 AM
• Pending home sales (Nov. 2008): Tuesday, 10:00 AM
• ISM Non-Manufacturing Survey (Dec. 2008): Tuesday, 10:00 AM
• Monster Employment Index (Dec. 2008): Wednesday, 6:00 AM
• Challenger job-cut announcement (Dec. 2008): Wednesday, 7:30 AM
• Public debt (Dec. 2008): Wednesday, 3:00 PM
• Consumer credit (Nov. 2008): Thursday, 3:00 PM
• Employment situation (Dec. 2008): Friday, 8:30 AM
• Wholesale trade (Nov. 2008): Friday, 10:00 AM

For expectations from some of this week's earnings releases, see The week in preview: Family Dollar, Bed Bath & Beyond, KB Home, and others.

Reuters writes that "Credit card companies have little to celebrate as many analysts brace for 2009 to be one of the worst years on record for consumer credit." The exposure could be $70 billion.

It is fascinating the the credit card business has not learned much from the rest of Wall Street, or even from the airline industry. Perhaps it is because it made the mistake of thinking that the economic expansion go on forever. Hedging is a part of many businesses. Why was the credit card business any different from airlines who hedge fuel costs?

Creating a financial instrument that would allow traders to short consumer defaults should hot have been very difficult. Banks love to create these kinds of derivatives, which became painfully apparent with the mortgage-backed securities industry. Since some of the issuers like Citigroup (NYSE:C) also ran investment banks and trading desks, they had all the tools to set up a system to give their credit card divisions some protection against rising consumer defaults.

But, that has been the financial industry over the last three years. Bet on things that will fall and avoid those that are valuable.

Douglas A. McIntyre is an editor at 247wallst.com.

Helping people with troubled mortgages is supposed to keep them in their homes and , over time, stabilized the housing market. The FDIC and Congress have urged that more money from the TARP be used for the purpose of propping up home loans instead of improving bank balance sheets.

The conventional wisdom about helping homeowners make payments may be wrong. According to The Wall Street Journal, a report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision shows that "More than half of loans modified in the first quarter had slipped back into delinquency after six months, and were 30 or more days past due by the end of September."

Not very promising progress. The theories from federal officials about why this is happening were not very helpful.

A look at the average troubled mortgage-holder may be more useful. This is a man who may lose his job as unemployment rises from 7% to, perhaps, 9%. He has little prospect for his income to rise. He may have large amounts of credit card debt but no access to additional credit. He may have an expensive home equity loan. And, perhaps worst of all, the value of his home may be way below the value of his mortgage. He may be facing the fact that he will never get a dime of equity out of his house.

The idea that helping troubled mortgage-holders may break the fall of housing prices could be deeply flawed. That would mean that pouring tens of billions of dollars into the home mortgage market may have very little effect. Better to make people fell that their jobs are secure and that they have access to credit at reasonable costs. Maybe then homeowners will fell that paying their mortgages makes some sense.

Douglas A. McIntyre is an editor at 247wallst.com.

It occurred to me while responding to a comment in my Chasing Value column that there are some basic necessities in life that we do not normally think of as such. The discussion had to do with finding those intrinsic or basic things a company (stock) produces that might reduce investor risk or help establish basic value.

Food and water clearly matter to everyone, and you could add energy, but until the economy freezes up like it has the past year, you might not appreciate the importance of credit.

The single biggest reason that car dealers say they cannot move anything off the lot is a lack of consumer credit. People have tapped out their credit cards and home equity lines, and probably their friends and family by now -- so it is all pay as you go. The going is rough and the going is slow.

The Federal Reserve has now reduced the overnight rate to nothing in an effort to get financial institutions to free up some of their capital and to lend to each other. They have also been trying to push mortgage rates down. They were successful in doing so because many lenders have offered me rates under 5% for 30-year fixed mortgages just this past week.

This post is part of AOL Money & Finance's Best & Worst in Money 2008 feature.

Consumers took it in the chin so many times this year, it's surprising many of us are still standing. Consumer credit for student loans, mortgages, car loans and just about everything else dried up completely by October. Oil prices soared, drained our pocketbooks, and then dropped like a stone after doing the damage. Food prices continue to soar as the prices for our homes and the value of our retirement funds plummet. So how does one decide, which is the most disturbing consumer trend? Let's look at our top four picks, presented in alphabetical order.

Americans with good credit struggling to get loans at favorable rates
While rates are starting to come down thanks to the latest bailout by the Fed, good deals are hard to find. Most banks are hoarding their cash and only lending it out to those with credit scores over 760. Even then, rates are not that favorable. You can only think about applying for a mortgage or equity line if you have at least 90 percent equity in a home that has probably lost value and, in most cases, you must have 80 percent equity to get a home loan. How can the U.S. stop the downward spiral in home values until credit is available for qualified buyers?

Getting a bank card with a big line of credit used to be as easy as pie. Make an application and get 25% of your annual income as a line. Then spend, spend, spend. Who cares that the annual interest rate might be 18%? Use that home equity loan to pay off the card balance. It is still debt, but your home value is rising.

It looks like that whole cycle is over and that banks are going to sharply cut credit card availability to consumers. That, of course, will hurt retail sales and the nation's GDP.

According to Reuters, "The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said."

Credit card caps could go so low that the overall access to capital using them may drop 45%.

The prediction shows the extent to which banks are now at odds with almost every other business in America. Financial firms have to keep capital to prevent raising money if they face more losses. Retailers and other business which rely on consumers to borrow need the banks to extend money to consumers to keep their buying power up.

Consumer credit provided by banks drove American economic expansion over the last five years. It is ironic that they are helping to kill it.

Douglas A. McIntyre is an editor at 247wallst.com.

Because so much of the recent market volatility has been tied to announcements of employment numbers, consumer credit, and other such economic data, here's a look at the schedule for some of the economic data to be released the week of November 3, 2008.

• ISM manufacturing survey (Oct. 2008): Monday, 10:00 AM
• Construction spending (Sept. 2008): Monday, 10:00 AM
• Ford Motor Co. sales (Oct. 2008): Monday, 1:00 PM
• New motor vehicle sales (Oct. 2008): Monday, 4:00 PM
• Factory orders (Sept. 2008): Tuesday, 10:00 AM
• Challenger job cut announcement (Oct. 2008): Wednesday, 7:30 AM
• ISM nonmanufacturing survey (Oct. 2008): Wednesday, 10:00 AM
• Monster employment index (Oct. 2008): Thursday, 6:00 AM
• Preliminary productivity and costs (Q3): Thursday, 8:30 AM
• Public debt (Oct. 2008): Thursday, 3:00 PM
• Employment situation (Oct. 2008): Friday, 8:30 AM
• Wholesale trade (Sept. 2008): Friday, 10:00 AM
• Pending home sales (Sept. 2008): Friday, 10:00 AM
• Consumer credit outstanding (Sept. 2008): Friday, 3:00 PM

For a look at expectations for this coming week's earnings releases, see The week in preview: Expectations remain high for energy and oil.

Charge-offs at American Express (NYSE: AXP) are growing. Since the company tends to have customers at the high-end of the income scale, that means that the rich, or at least the well-to-do, are getting poorer.

The news says more about what is happening to the upper middle class than what it tells the market about American Express earnings. The stock market has already discounted the credit card company's numbers. AXP shares are down over half from their 52-week high.

According to The Wall Street Journal, "The percentage of loans deemed noncollectable in a pool on which American Express reports monthly performance data reached 6.7% in September, up from 3.6% a year earlier."

The news should be viewed as a ripple effect that could swamp earnings at companies from Tiffany's (NYSE: TIF) to Apple (NASDAQ: AAPL) If consumers who had money to pay bills on cards used for discretionary purchases with relatively high price tags then an entire level of the US economy is at risk. It has been assumed for several months that people with modest incomes were not going to be buying increasing amounts of consumer goods. Now the disease is spreading upward throughout the economic system.

An economic dip might be defined as a time when those with low incomes feel their ability to spend get tight. A recession can be defined as a time when almost no one has any money to buy anything. The American Express numbers put the economy into that second category.

Douglas A. McIntyre is an editor at 247wallst.com.

Alcoa Inc. (NYSE: AA) kicks off the new earnings seasons when it reports third quarter results on Tuesday. The Pittsburgh-based aluminum producer, which celebrated its 120th anniversary with the launch of its website, is expected to post a profit of 54 cents per share, down 15.6% from the same quarter of last year, on revenue of $7.2 billion, down 2.1%. While Alcoa has tended to fall short of estimates in recent quarters, in the second quarter it did offer a positive surprise of almost 3%. Its long-term earnings per share growth forecast is 14.8%, a little less than the S&P 500, and analysts polled by Thomson Financial on average recommend buying Alcoa, and have for more than 90 days. Shares reached a new 52-week low last week, and are down 48.9% from a year ago.

General Electric Co. (NYSE: GE) is also expected to report a slip in earnings this week. Analysts anticipate that the conglomerate will post a third-quarter profit of 45 cents per share, down just 6.3% from a year ago, on revenue of $47.7 billion, which is up 12.1%. GE has tended to eke out small positive surprises in recent quarters, by less than 1% in the second quarter. GE's long-term earnings per share growth forecast is only 11.0%, which is less than the sector average and the S&P 500. The consensus recommendation has recently swung to hold GE, but Warren Buffett has bought in to the tune of $3 billion. GE also reached a new 52-week low last week as the markets tumbled. GE shares are down 48.1% from a year ago.