Saturday, April 12, 2008

What Credit Crunch?

WALL STREET JOURNAL--The credit crunch has made it harder for Americans to indulge in their love affair with debt. So what are they doing? Borrowing more.

While tighter lending standards have cut off all but the most credit-worthy borrowers from auto loans and home loans, many people are turning to credit cards and tapping more of their home-equity lines of credit to dig themselves in deeper.

The rise in borrowing shows just how addicted the U.S. consumer has become to credit. Even as borrowers are cut off in one area, they promptly look for new sources.

Comment: Consumer credit at U.S. banks is growing now by almost 6% on an annual basis, close to double the rate two years ago when growth was below 3.5% (see chart above). Whether or not the increase in consumer credit is a good thing is certainly subject to debate, but it seems clear that the media focus on a "credit crunch" is way overblown. As I've asked before: What credit crunch?

Update: The graph shows the annual growth rate in the monthly series "Total Consumer Credit Outstanding" from the Federal Reserve, available here via FRED, calcuated as the percentage change from the same month in the previous year.

7 Comments:

At 4/12/2008 10:22 AM, Anonymous Anonymous said...

The blog chart is graphing revolving consumer credit (5.9% annualized growth) not total consumer credit (2.4% annualized growth) and nonrevolving consumer credit (0.4% annualized growth) through February 2008.

See FRB:G.19 Release.

 
At 4/12/2008 4:12 PM, Blogger Mark J. Perry said...

The chart shows the annual growth rate of total consumer credit, calculated from the same month in the previous year.

See the data here.

 
At 4/12/2008 6:07 PM, Blogger Walt G. said...

When you combine all the consumer debt of the soon-to-be 3 trillion dollars with the government debt of 8 trillion dollars, it makes you wonder who and how it can all be paid back. That’s almost $37,000 for every man, woman and child in the United States for principle payments alone.

Maybe the government can send us a stimulus payment of $37,000 each to pay it off. That would surely solve the problem. Wouldn’t it?

 
At 4/12/2008 7:38 PM, Anonymous Anonymous said...

I love watching debt slaves toil.

 
At 4/12/2008 8:50 PM, Blogger bobble said...

the chart seems like an apples to oranges comparison.

my understanding of the media's use of the term "credit crunch" is that it refers to the suddenly indeterminate values and consequent market shutdown for collateralized and securitized debt instruments.

it also refers to tightening of terms to consumers for mortgages and HELOC's.

i haven't heard the media talking about a "credit crunch" relating to credit card use (although, that is the area reputed to be next to blow up).

the consumer debt shown in the chart is debt assumed by consumers for purposes other than home mortgages. so, to me, the chart doesn't disprove the media's credit crunch stories.

 
At 4/12/2008 10:11 PM, Anonymous Anonymous said...

Something else that belies the "credit crunch" is the aggressive advertising of loans.

If credit is so tight, how come there are copious advertisements for various kinds of home improvement loans, car loans, mortgages, etc?

Maybe it isn't availability of loans/credit, perhaps it's the availability of credit worthy borrowers?

 
At 4/14/2008 11:27 AM, Anonymous Anonymous said...

When you combine all the consumer debt of the soon-to-be 3 trillion dollars with the government debt of 8 trillion dollars, it makes you wonder who and how it can all be paid back.

Since you feel this way, I suggest you don't buy government bonds or stock in credit card companies.

 

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