Credit Card Debt Goes DOWN in August
I’m not sure if this is good news or bad news, but for the first time in a decade, Americans actually paid off some debt!
From Marketwatch:
Seasonally adjusted consumer debt — including credit cards, auto loans and other unsecured debts — fell by a record $7.5 billion, or a 3.7% annual rate, to $2.58 trillion in August. That’s the largest percentage drop since January 1998, the Federal Reserve reported Tuesday. Consumer debts had risen 2.4% in July.
That’s only about twenty bucks for every man, woman and child in the country, and the numbers don’t include mortgages or home equity loans. While any decrease in debt is good, these numbers don’t provide a lot of context and I have a couple of questions …
Did consumers CHOOSE to spend less or were they not allowed to spend more? One other point the article makes is that automobile borrowing dropped sharply, but there’s a difference between borrowing being down and applications for loans being down. Did consumers try to buy a car and get denied?
Well, let’s see. Here’s a notice from HSBC on August 6, 2008:
HSBC has made the decision to exit the Auto Finance business in the U.S.. As a result, HSBC Auto Finance will discontinue offering auto loans to its customers effective August 6, 2008.
And then there’s this article from bnet on September 29,, 2008:
In 2008, about 81 percent of prime-risk loan applications eventually got approved, down from about 91 percent in the year-ago period, from Jan. 1 to Sept. 20, CNW said. Near-prime approvals fell to 77 percent, from 86 percent.
[CNW President Art] Spinella said subprime approvals fell to only about 23 percent, down from 67 percent a year earlier.
What did credit card rates do in August?
I couldn’t actually find some quick information on this, which surprised me. I’ll update later if I find it. My guess is that the probably didn’t go DOWN.
From a related article in the Wall Street Journal, Fed Chairman Ben Bernanke did note that lenders are lowering credit card limits, which might have startled a lot of people and prompted a bit of a payoff just to create a cushion.
I did find this bit in an article in the Atlanta Journal-Constitution on October 7, 2008:
Revolving credit, which includes credit cards, has grown faster than nonrevolving credit, or installment loans such as mortgages, since May 2006, according to the Fed. But that growth rate has been slowing for most of the year, suggesting it may fade as a source of consumer-spending power.
“Banks are starting to see increased delinquencies on their credit-card portfolios and are trying to raise rates and tighten terms on payment,” says Richard Moody, chief economist at Mission Residential. “It’s an implicit way of tightening credit.”
Is this going to cause even more problems with the economy?
Quite possibly. If people spend less, companies lose money and jobs go away. I would like to point out, though, that many of the jobs lost could be overseas. It doesn’t help bring back any jobs here but for those who have been seething at the outsourcing of their livelihood to another country, there might at least be a bit of a sense of payback.
Even if it is bad for the economy, it certainly doesn’t mean American citizens should take one for the team and keep shopping. I mean, really – the debt of Americans went down $7.5 billion in August, but it went up $800 billion or so in September and October, right?
By the way, I saw this news yesterday:
The National Debt Clock has run out of spaces to display $10 trillion in red numerals.
By adding $100 billion to bail out Fannie Mae and Freddie Mac, and $700 billion to bail out banks and the credit market, there’s no room for more zeroes.
