Surging Credit Card Borrowing and Scary Implications

Jennifer Sinclair
Summary of Market Information
May 8, 2008

In a recent report on credit borrowing, it was found that consumer borrowing for auto loans, credit cards, and other non-real estate transactions has shot through the roof, by $15.3 billion.

The anticipated growth of credit borrowing by economists was $6 billion, so this comes as a surprise. This much borrowing, in a healthy economy, would signal a strong consumer increase in spending and more economic growth over time. But as we all know, this is not a health economy.

So what does this number mean? It means that consumers who are accustomed to taking out home equity loans and lines of credit, using them for vacations, boats, and other fun stuff, aren’t getting that money anymore. Banks aren’t willing to lend past equity and therefore have pulled the plug.

Instead, credit cards and other borrowings, for even day-to-day transactions have skyrocketed. Surging food and energy prices have forced consumers to rely on credit instead of ready cash. And this will weaken an already stumbling economy if allowed to persist.

Source:
Mike Larson, www.moneyandmarkets.com, May 8, 2008