By JLP | February 8, 2012
From today’s WSJ:
Household borrowing through credit cards, car loans, student loans and other installment debt—which excludes mortgages—rose at a seasonally adjusted 9.3% annual rate in December, following a 9.9% rise in November, the Fed said Tuesday. That was the biggest two-month surge since late 2001, when auto makers rolled out zero-percent financing after the Sept. 11 terrorist attacks.
The title of the article is Auto and Student Loans Drive Borrowing Surge.
Mr. [Troy] Davig said the latest data offer a glimmer of hope that the long process of household debt-reduction, called deleveraging, is in a late stage. That process has slowed the recovery as Americans worked to pay down debts rather than spend money on goods and services. “That’s starting to come to an end,” he said.
To be sure, household debt-reduction isn’t over. The McKinsey Global Institute reported last month that American households have wiped out $584 billion in debt since the end of 2008, mainly through defaults, but also through payments. Still, some $254 billion worth of mortgages is headed toward foreclosure, and household deleveraging likely won’t be complete until mid-2013, the report states.
Consumer spending makes up roughly 70% of our nation’s GDP. So, promoting frugality is a no-no. Paying down debt is frowned upon. Long-term, this is not a good thing.