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Monday, April 09, 2012 12:26 PM

The Real Consumer Credit Story: Virtually No Recovery in Revolving Credit, No Recovery in Non-Revolving Credit

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Bloomberg reports Consumer Credit in U.S. Rose Less Than Forecast in February

U.S. consumer borrowing rose less than forecast in February, restrained by a drop in credit-card debt, according to a Federal Reserve report.

Credit increased $8.7 billion, the least in four months, after a revised $18.6 billion gain in January that was more than initially estimated, Federal Reserve figures showed today in Washington. Economists projected a $12 billion rise in the measure of revolving and non-revolving loans for February, according to the median forecast in a Bloomberg News survey.

Non-Revolving Debt

Non-revolving debt, including educational loans and borrowing for autos and mobile homes, climbed by $10.9 billion in February, the smallest gain in four months, today’s report showed. The Fed’s report doesn’t track debt secured by real estate, such as home equity lines of credit.
I am amused by such reports because except for student loans, there has not been any growth in either revolving credit or non-revolving credit since the recession ended.

The following charts show the real story.

Non-Revolving Credit

Non-Revolving Credit Detail

Percent Change From Year Ago

Excluding student and government loans there is virtually no recovery in non-revolving credit.

Revolving Credit

Revolving Credit Detail


  1. There has been virtually no recovery in consumer non-revolving credit.
  2. There has been virtually no recovery in consumer revolving credit.
  3. Rising student loan debt is a major problem, not a sign of economic strength.
Middle-Aged Borrowers Pile on Student Debt

Reuters reports Middle-Aged Borrowers Pile on Student Debt
Educational borrowing is up for every age group over the past three years, but it has grown far more quickly among those between 35 and 49, according to the analysis of more than 3 million credit reports provided to Reuters by the credit score tracking site CreditKarma (CreditKarma.com). That group saw its school debt burden increase by a staggering 47 percent, according to the analysis.

The average student loan debt for those aged 38 to 41 was the biggest of that group -- about $12,000, up from just under $9,000 in 2009. Young people still carry the biggest student loan burdens; those aged 26 to 29 have an average of $14,000 in student debt. But the increased levels in middle-aged student debt is a new phenomenon.
Negative Payback on Retraining

The benefit of going back to school at age 49 is likely negative.

My friend "BC" comments:
The payoff for 40- and 50-somethings taking on debt to change occupations or trying to find jobs in "health care" or "education" and compete with Millennials trying to secure similar positions is low or negative.

Statistically, the benefit to "education" occurs between ages 14 and 22, where one goes to high school and university. Obtaining an MBA, law degree, or another graduate degree after age 26-28 historically has not resulted in a net benefit in terms of job/career prospects or wage/salary income; and this has become particularly the case since the late '90s.

In other words, the vast majority of people running up debt at universities, community colleges, and for-profit technical schools are wasting their time and money, as well as directing scarce resources to the "health care" and "education" sectors that don't need more misallocation further driving up costs.

Needless to say, there is no precedent in US history for middle-aged unemployed, underemployed, or unemployable Americans running up debt in an economy that has not created a net new private sector full-time job per capita in at least 10 years.
Recovery? What Recovery?

People are hiding out in school because they cannot find jobs. In the process, they are piling up more student debt that for many will be a burden for the rest of their lives. Student loans are a scam and should be phased out starting now.

Bernanke is trying like mad to encourage more consumer spending, but the results speak for themselves. He has failed.

Mike "Mish" Shedlock
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