3 responses to “Revolving Credit Debt Rose in December 2010”

1. 

   Muros Group

   February 15, 2011 at 6:21 am

   Very big debt of all over the world (even in Russia not Coverment but quasigoverment like Gazprom and other companies) is the main risks in 3-5 years period.

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2. 

   Shane Curran

   March 21, 2011 at 11:35 am

   If you have to borrow, I agree it is better for the economy if the consumer is spending on infrastructure (such as a house) instead of spending on groceries. On an individual level it is a bad idea to borrow to pay for daily needs or in this case Christmas presents, but from a macro standpoint, any spending is going to stimulate the economy. Another issue to point out is that there was a housing bubble that deserves a correction. Incentives are already in place to encourage spending on housing, the most notable is a low interest rate and first time home buyer subsidies. We do not want to create another situation of “irrational exuberance” with the housing market just because it will help the economy in the short run.

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3. 

   Scott Dean

   March 28, 2011 at 1:51 pm

   Recessions come from decreasing aggregate demand, ie people stop buying things. When people stop buying things, other people stop selling things, then they stop buying things, and as we know this downward spiral continues until it bottoms. As we’re clawing our way out of a recession, the same things happen, but in reverse. Some people grow tired of not having bought anything new in 2 years, they’ve almost lost their raison d’etre and the urge is there to finally get a new DVD player, a new computer, iphone, iPad, etc., etc. So a few people start to buy more things. When they start buying more things, other people start selling more things, then they start buying more things, and as we know this upward spiral continues until it bursts.

   There is absolutely nothing wrong with consumerism. The most successful countries, with the highest GDP’s and the highest worker productivities enjoy the most consumerism. Think of consumerism simply as a market. People make stuff and “consumers” buy/”consume” that stuff. If your producing or selling a good/service, I’m sure you’re very happy if “consumers” show up to “consume” once again. This is a sign of a healthy, or in our case, a recovering economy. Future expectations also play a role here. If people are buying, it’s not just because they have some money sitting around. They will only buy if their expectations for future income is bright/improving. If they feel they will have little trouble replacing the money they spend, they will spend it.

   It doesn’t matter what they buy/sell. Houses, baseball cards, iPhones, who cares. When consumers make a decision, labor will move to produce and provide what consumers are demanding.

   In the early stages of a recovery, the train is just pulling away from the station so to speak. Imagine that the train is on a roller coaster, heading up the big hill, before the thrill. At the bottom of the hill are the less expensive items in the economy and those that satisfy short term immediate wants/needs (also the easiest material wants to fulfill). As the economy heats up, the train moves higher up the hill. Now some people (at the front of the train) are buying big ticket items, durable goods, cars, boats, motorcycles, jet skis. As the economy continues to heat up, more and more people are beginning to participate in the success of the economy and reaping it’s rewards. Money is flowing, people are working, credit is easy, etc. Now the train nears the top of the hill. Some people (at the front of the train) begin buying homes, condos, timeshares, more cars, more homes, etc. At this stage the economy is humming along and everything is great, everybody is making money, more people are jumping on the back of the train near the bottom of the hill and follow in the footsteps of those before them. As needed labor will shift it’s productive capacity from industries with less demand to those with higher/growing demand. So everything will re-adjust itself in due time. You’ll get your housing numbers, but they will come later.

   If anything. strong housing numbers might be an indicator that we’re nearing a peak in the business cycle and may foreshadow things slowing down. As it did this time. So now I’d only be focused on the fact that the train is leaving the station.

   I say that the housing strength comes later in the business cycle because I believe that people step back into the economy one toe at a time. Before taking on enormous risk and responsibility, they’re happy for the time being just feeling comfortable enough to buy that new iPad 2, or iPhone 4. Cash or credit, doesn’t matter to me. In my opinion credit is an indicator that consumers are feeling less threatened by the economy and they feel that their expectations for the future are improving at a pace that would enable them to make the $700 purchase. When they feel like the expectations for the future are good enough to buy a home, then they will buy a home. We’re not there yet.

   People aren’t going to buy homes en masse until unemployment has come down, banks are more willing to lend and peoples’ incomes and asset values begin to return to pre-recession levels. (or at least much closer) Buying homes won’t fix the economy, the ability to buy a home will come after the economy has been fixed. Purchasing a home is more of a result of a good economy than a driver of one. (shift your thoughts for a moment from a macro view to a micro view, if you’re just getting back on your feet, or just getting out of college, is a new home going to be your first purchase? The marco economy operates in the same way, why would home sales come so soon, so early? We’ll buy houses in a few years, after we’ve got some more time on the job, money in the bank, etc) The economy will be fixed by consumer spending that will slowly increase and will lead to the re-employment of labor throughout the economy. Both of these things will continue to drive each other in an upward spiral, until finally, the economy is back to more normal historical levels.

   The views expressed above are my own “private theory”. Hopefully it will help to clarify some things and emancipate the “virtues of consumerism”.

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