What Credit Crunch?

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by: Nick Perry

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.

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