Consumer Credit Keeps Shrinking

Everyone has either grown to hate credit now, or miss it because it has been taken away.  The Federal Reserve just gave a report for the month of August which shows that credit to Joe Public has again contracted.  In August, total consumer credit in the United States decreased at an annual rate of about 1.75%. Revolving credit fell by a whopping 7.25% annualized, while non-revolving credit increased by about 1.25% on an annualized basis.

This put total credit at $2.4143 trillion, which was broken down as being $822.2 billion in revolving credit and $1.592 trillion in non-revolving credit.  This $822.2 billion in revolving credit (credit cards) was the lowest since before 2005 and it is down from the peak of $957.5 billion for the year 2008 before America’s death spiral went into overdrive.

There were some average rates being paid as well, with average 48-month car rates going at 6.24% and 24-month personal loans averaging 10.71%.  When you have interest rates paid this high versus only being able to earn 2.4% in 10-year Treasury Notes and 3.71% for a 30-Year T-Bond, it is of little surprise that credit keeps shrinking.

The best investment Americans can make today is paying off their debt.  Until investment returns can approach what it costs to borrow then credit will keep coming down.  Rates are approaching 4.25% for 30-year mortgages, assuming you can qualify.

JON C.  OGG