Light at the End of the Tunnel and It’s Not Another Train

Consumer Debt Resumes Growth — But Credit Card Use Declines     Wall Street Journal March 8 2011

Consumer debt (excluding mortgages) increased for the fourth straight month in January.  If ever there was a proxy for consumer confidence, this may be one of the best.

Consumer credit now totals $2.4 trillion (compare that to $9.4 trillion of first-lien single family home loans per Fannie Mae) and is growing at a 2.5 percent annualized pace.  Within that debt, however, while credit card debt declined (I’m guessing the CARD Act’s impact on costs and a higher bar to qualify for consumers), non-revolving credit (education, cars, Boats, jet-skis, snow skis…..) jumped 7 percent.

Credit card debt has declined from $974 billion in mid-2008 to approximately $796 billion today.  The decline is a combination of lenders writing off bad debt (which I wrote about in this blog one year ago ), consumers borrowing less, and in my opinion, banks offering fewer consumers credit given the onerous benefits accorded borrowers in the CARD Act–see my blog postings at and

The first graph shows total consumer credit outstanding.

One of the concerns about consumer debt, that, if used for a vacation or dinner for example, rather than the purchase of a durable good, there immediately remains no value of the expenditure.  As for revolving credit there are assets (cars and boats, for example), that are depreciating assets but none-the-less have some value in exchange.

The next graph shows total revolving credit that currently makes up just 33 percent of consumer debt compared to 40 percent in January 2000.

Good news is that people are once again confident enough in the economy to resume borrowing.  Bad news is that much of this debt will far outlive the benefits received when the debt was incurred.

I’m looking at the glass half full though.

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