Americans Cutting Debt

Here’s what the AP had to say about the latest debt trends in American today:

Consumers slashed their borrowing in July by the largest amount on record as job losses and uncertainty about the economic recovery prompted Americans to rein in their debt.

The magnitude of the drop surprised analysts. Some thought the Cash for Clunkers program — which began in July and aided auto sales and car loans — would have blunted cutbacks in other lending areas.

The Federal Reserve reported Tuesday that consumers ratcheted back their credit by a larger-than-anticipated $21.6 billion from June, the most on records dating to 1943. Economists expected credit to drop by $4 billion.

Demand for non-revolving credit used to finance cars, vacations, education and other things fell by $15.4 billion, also a record decline. That 11.7 percent pace was on top of an 8 percent annualized decline in June.

Consumers’ appetite for revolving credit, primarily credit cards, declined by $6.1 billion in July, an annualized rate of 8 percent that followed a 6.4 percent drop in June.

Economists predict that consumers will be spending less, saving more and trimming debt to get their household finances — which have been decimated by the recession — into better shape.

I know that in an economy that is driven by consumers borrowing themselves into oblivion, some might see this as a sign that a recovery will be a long time coming. Well, I hope the spending habits that many people are discovering during this recession carry over into a recovery. The cutting of debt and increased saving that have been responses to the current financial downturn have the potential to help create a new generation of savers who are notoriously averse to debt. All of us probably know some older folks who lived through the Great Depression and have been savers ever since. I know that the current downturn is nothing like the Great Depression, but maybe it will have some of the same effects in that it will help create a generation of people who don’t spend beyond their means. We’ll just have to wait and see how long the memory of people living through this current recession lasts and if it was enough to change the behavior of the American consumer.

siggy-copy

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s