Saturday, June 26, 2010

Credit Card Debt Has Been Declining But...

it's not due to reasons we would like.  "Total Revolving Credit Outstanding" is a fancy way of referring to the total amount owed by all U.S. consumers on credit cards. As you can see the U.S. consumer has a lot less debt on their credit cards then when before the recession started.  Unfortunately it reflects a lot of people just straight up defaulting on their credit cards.

The WSJ Real Time Economics blog highlighted this fact when referencing Americas shrinking current-account deficit:
"The latest data on the deficit, though, suggest the decrease is as much a reflection of Americans’ insolvency as it is a sign of a return to financial and economic health."
This is the incredibly lame American way:

1. Amount hysterically large amounts of credit card debt (expecting things to never change like your job, income, marital situation, ect)
2. Once times are tough buckle under pressure and default.

What needs to occur is increased financial literacy and education to prevent people from borrowing with the attitude "the sky is the limit".  Maybe for Lil' Wayne it is but not for most people, as the recent dramatic drop in debt shows.  The really pathetic thing here is that if incomes and home prices continued to increase we would still see a rise in credit card debt and not a scramble by people to pay down their debts.  Since we saw the opposite; we see a drop in debt because an increasing segment of the population is unable to afford the minimal interest rate payments on their exploding debt so they are forced into default.

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