Post by unlawflcombatnt on Oct 13, 2007 5:32:53 GMT -6
from Reuters:
Credit Card Debt Exploding
By James Saft
"LONDON (Reuters) - The automated teller for home loans is empty and Americans are relying increasingly on credit cards to pay their living costs, indicating tough hurdles ahead for U.S. consumer spending and markets.
Federal Reserve data released on Friday showed U.S. consumer borrowing rising by $12.18 billion in August, more than 20 percent more than economists had forecast.
Most striking was an 8.1 percent increase in borrowing on revolving credit lines, mostly credit cards, to a record $909 billion.
Credit card borrowings rose at the sharpest rate since early 2002.
So what was it that persuaded consumers to rack up more debt during the month?
Was it the increasing press coverage, no doubt reinforced by friends and family, that their houses were worth less than a month or a year ago?
Or was it the near meltdown in financial and credit markets that prompted a surge in speculation about an upcoming recession?
Quite possibly, it wasn't because they felt better, but because things had gotten suddenly worse.
"If they had been financing their consumption on the basis of the equity of their homes and suddenly that is cut off then they will have to borrow more through traditional channels," said Stephen Lewis, economist at Insinger de Beaufort in London.
And August was a very bad month for the substantial minority of Americans who have depended upon housing borrowing to finance ongoing consumption. Not only were house prices continuing their slow, steady march lower, but the world had woken up to the seriousness of the issue and the asset backed financing markets more or less shut.
That meant less housing wealth to borrow and fewer lenders willing to lend against it, either in the form of a home equity loan or refinancing.
So, what's a borrower to do but put it on the card...."
Credit Card Debt Exploding
By James Saft
"LONDON (Reuters) - The automated teller for home loans is empty and Americans are relying increasingly on credit cards to pay their living costs, indicating tough hurdles ahead for U.S. consumer spending and markets.
Federal Reserve data released on Friday showed U.S. consumer borrowing rising by $12.18 billion in August, more than 20 percent more than economists had forecast.
Most striking was an 8.1 percent increase in borrowing on revolving credit lines, mostly credit cards, to a record $909 billion.
Credit card borrowings rose at the sharpest rate since early 2002.
So what was it that persuaded consumers to rack up more debt during the month?
Was it the increasing press coverage, no doubt reinforced by friends and family, that their houses were worth less than a month or a year ago?
Or was it the near meltdown in financial and credit markets that prompted a surge in speculation about an upcoming recession?
Quite possibly, it wasn't because they felt better, but because things had gotten suddenly worse.
"If they had been financing their consumption on the basis of the equity of their homes and suddenly that is cut off then they will have to borrow more through traditional channels," said Stephen Lewis, economist at Insinger de Beaufort in London.
And August was a very bad month for the substantial minority of Americans who have depended upon housing borrowing to finance ongoing consumption. Not only were house prices continuing their slow, steady march lower, but the world had woken up to the seriousness of the issue and the asset backed financing markets more or less shut.
That meant less housing wealth to borrow and fewer lenders willing to lend against it, either in the form of a home equity loan or refinancing.
So, what's a borrower to do but put it on the card...."