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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.

click to enlarge

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.

Nick Perry

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This article has 7 comments:

  •  
    Apr 14 06:26 PM
    seems like everybody is maxing out their current available credit. what's harder is obtaining new credit. problem is credit can be gotten for outrageous cost i.e. expensive credit cards.
  •  
    Apr 14 06:34 PM
    So... let me get this straight: the fact that Americans are hopelessly debt-addicted (and many are now technically insolvent due housing bubble implosion) is *good news* because... up until now, there's always been another cheap-money pimp around the corner willing to give the debt-junkie his next "fix".

    If this is "good" news, please spare me the bad news.
  •  
    Apr 14 08:36 PM
    HARM, sounds like the same sorts of things being said about the housing market two years ago...

  •  
    Apr 14 10:46 PM
    There's a difference between borrowing money and being able to pay it back; as mortgage lenders have/are finding out.

    The next crash will be the plastic crash.
  •  
    Apr 15 12:22 AM
    You're missing a few crucial quantitative details. First, the growth of credit should be adjusted for inflation and also per-capita, to get a sense of whether it's really growing or not in terms of an individual's actual purchasing power. Second, if you look at the Fed's G.19 source data you can see that the trend has keeled over dramatically. After increasing at an 8.0 percent rate (annualized, seasonally adjusted) in Q3 of 2007, consumer credit growth dropped to 4.0 percent in Q4, and over the last three months (Dec/Jan/Feb data), it is now down to just 2.8 percent AT A TIME WHEN INFLATION IS SPIKING.

    My take on this is that consumers, reaching the end of their rope in the mortgage, HELOC and refi arenas (not part of this data set), grasped at as much credit as they could in the 3rd quarter and then ran out of room to borrow in the 4th quarter (remember, Christmas retail sales were awful).

    My prediction is that you'll see the credit crunch show up in your data in the next 2 quarters.
  •  
    Apr 15 08:55 AM
    plastic is not paid back from reselling your freaking purchases. unlike speculate mortgages and ARMs. where is the logic people? the banks are not full of idiots, despite what you hear on fox business.
  •  
    Apr 15 02:36 PM
    agree with wisdom seeker. you'll see the crunch in the following quarter just like in the current corporate reporting season. wake up! there is nothing overblow about this crunch. more importantly, fed will continue to print more money to provide ample liquidity to banks at the cost of USD exchange rate. this crunch can't be solved with just monetary policy. it needs a co-operation of fiscal policy. i suppose the later will not happen until the election is wrapped up.

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