http://www.marketwatch.com/news/story/us-dec-consumer-credit-up/story.aspx?guid=%7BD5A6B895%2D4B83%2D42F8%2DA671%2DBB28A5EBB019%7D&dist=hplatest
U.S. consumers took on more debt in December, increasing their credit-card balances, but at a slower pace than in the prior month, the Federal Reserve reported Thursday. Total seasonally adjusted consumer debt increased by $4.5 billion, or a 2.1% annual rate.
I have read some commentary that this is a good thing. Other numbers show that bank lending was up in the 4th quarter from 2006 4th quarter. The argument goes that this is a sign that everything is okay. Financial markets are lending.
Is it?
As Charlie Munger says "invert, always invert." Maybe all that is good news but maybe it is really a sign of bad news. We know banks are not really doing real estate deals. LBO market has long dried up. So maybe these loans are companies who have LOC (line of credits) who are now tapping into them because other financial souring options are closed. Banks may preferr to not lend this money currently but are required under contract to recognize the LOC. With the consumer, maybe the consumer is really struggling and maxing out their credit cards trying to make ends meet.
Like I said maybe that is good news, but unlike some commentary I have read, not necessarily. Time will tell.
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Every single category of lending was up in fourth quarter though (YoY and QoQ). Even home equity loans were up 3+%...I don't think that can be attributable to previous lines of credit that banks had obligations to fulfull...seems more likely there is plenty of lending going on, it has just been reallocated to the less-risky borrowers.
I don't know. The last two weeks there have been waves of banks saying they are suddenly cutting HELOC's. Have also read in the past couple of weeks credit card companies lowering credit limits.
For some reason I don't think 4th quarter lending was up becaue banks were particular eager to be lending. The auction rate bonds were failing even in the 4th quarter. Unlike today banks were stepping in to prevent them from failing. That technically increases lending though at the banks dismay.
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