Sunday, January 13, 2008

Some Debt Trends...

Floyd Norris has an excellent piece in the New York Times today concerning the huge growth in 'plastic' debt. Back when the movie "The Graduate" was made, this is not what they probably envisioned when they said 'plastics.

AMERICAN credit card debt is growing at the fastest rate in years, a fact that may signal coming trouble for the banks that issue them.

The Federal Reserve reported this week that the amount of revolving consumer credit that is outstanding hit $937.5 billion in November, seasonally adjusted, up 7.4 percent from a year earlier.

The annual growth rate has now been over 7 percent for three months running, the first such stretch since 2001, when a recession was driving up borrowing by hard-pressed consumers.

For the past several years, consumers were able to tap the MEW 'piggy bank' for all things American -- vacations, new cars, second homes, granite countertops, and on an on... Now with the piggy bank running dry, they are turning to their last option, the 'plastic' bank.
Increases in outstanding credit card debt can indicate a strong economy, as
confident consumers spend more, or it can indicate the opposite, as troubled
consumers find it harder to pay their bills. The fact that the November
increases in credit card debt came during what appears to have been a weak
holiday shopping season could be an indication of the latter.
Coupled with lackluster consumer spending during the Holiday Season, it appears this growth in spending is certainly not of the 'strong economy' kind.

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