Are consumers finally getting smart? Credit card balances always fall short

Triggers and big changes in spending, destroying entire businesses and fattening others.

Issued by Wolf Richter To Wolf Street.

U.S. consumers – let’s face it, consumption has been at the forefront of these initiative times – have repaid their credit cards.

In October, credit card balances and other revolving credit fell again from the previous month, falling 10.3% from October last year, the highest year-on-year decline since the financial crisis (-9.9% in January and February 2010):

Based on seasonal adjustments, credit card balances and other revolving debt fell to $ 980 billion (green tax in the table below) Federal Reserve data This afternoon – despite 13 years of inflation and population growth, the stock first appeared in October 2007.

Seasonal unpaid credit card balances and other revolving debt were first seen in August 2007 at $ 943 billion (the red line). Since its peak in December last year, balances have fallen to $ 151 billion.

This is something we have seen in other data: Seasonal adjustment can no longer be adequately caught up with new loan schemes that outperform the season. The classic climate on consumer debt, established for decades and completely predictable, has been avoided by events:

The mega decline in credit card balances in April was due to the dual impact of incentive payments used for credit card balances and large areas of the economy, where consumers typically use their credit cards to spend money. , Malls, restaurants, cruise ships, air travel and hotels will be closed.

Prior to the financial crisis, revolving debt had never declined for more than a year. For decades, in the early days Americans had an astounding interest in credit card debt, with annual double-digit annual hikes that allowed them to buy goods and do things they could not afford, which crippled the U.S. economy. The plan lasted until it exploded during the financial crisis, which led to a year-on-year decline in the first year. Now there is a year-over-year decline over the second year, and always steep:

It is now clear that there have been major changes in how and why consumers spend money on this Always a different economy, Wiping out entire businesses and fattening others – because the net total is still negative, i.e. a Decline in consumer spending compared to last year.

Expenditure is driven by incentive money and additional unemployment benefits, and the low mortgage rates that triggered the tsunami of mortgage refinancing resulted in lower monthly payments that freed money to spend on goods, while many homeowners refinanced their money, or some of this money was released on their own Home loans are used to pay for goods and some of them are used to pay off credit card balances or to prevent them from escalating.

For consumers who can pay with their credit cards, this is a good thing, as banks and credit card companies often charge interest rates of 25% or more in a zero interest rate environment.

For banks and credit card companies, this is a tough rule because they charge higher interest rates, which is where they make big fat profits. There is no doubt that the central bank and economists are concerned about this growth of consumers who organize the most profitable business of banks.

But consumers should be happy to get out of their credit card debt and stay away from it, because there are a lot of things they can buy with 25% interest at $ 10,000 at 25% interest without the money they spend. Credit card credit.

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