Consumers Cut Debt by Record $21.6B in July

[cal04]

Federal Reserve says consumers slash borrowing by record $21.6 billion in July
http://abcnews.go.com/Business/wireStory?id=8517915

Consumers slashed their borrowing in July by the largest amount on record as job losses and uncertainty about the economic recovery prompted Americans to rein in their debt.

Economists expect consumers will continue to spend less, save more and trim debt to get household finances decimated by the recession into better shape. However, such action is a recipe for a lethargic revival, as consumer spending accounts for 70 percent of economic activity.

The Federal Reserve reported Tuesday that consumers ratcheted back their credit by a larger-than-anticipated $21.6 billion from June, the most on records dating to 1943. Economists expected credit to drop by $4 billion.

Wary consumers and hard-to-get credit both factor into the scaled-back borrowing. But economists are split on which force — lack of demand by consumers or lack of supply from banks — is having the bigger influence.

"It's really a tug of war," said Mark Williams, professor of finance and economics at Boston University and a former Fed bank examiner. "It's true that consumers are being more responsible, saying 'I don't really need that extra credit card,' but it is more related to banks clamping down on lending."

[Common Sense Party]

1. Hallelujah! Finally--some Americans are being frugal and sensible.

Too bad it took a global financial meltdown to inspire it.

[Arctic Dave]

2. "consumer spending accounts for 70 percent of economic activity."

This one statement alone should tell everyone how out of whack our economy is. The economy will never be at a level it was until we address the problem of shipping our industries to third world countries.

[gratuitous]

7. It should also tell us

That as consumers, we are the engine that drives the economy. Not high-flying venture capitalists, not the captains of industry, and certainly not the Dow Jones Industrial Average. Which poses the question: Why doesn't the economy, and the decisions that affect the economy, cater just a little more to consumers? Why does every discussion begin and end with how any particular proposal is going to affect investment capital or high rollers or Wall Street, and rarely how it's going to affect consumers?

For years, we've been scolded about a negative savings rate. Now consumers will be treated to scolding about how we're not spending enough for the fat cats to buy new yachts every year.

[Arctic Dave]

9. I agree.

I think wall street loves the venture capitalist is because they found another way to get people to spend money they don't have on crap they don't need.

[Cant trust em]

3. Maybe this recession is the slap in the face that the country has needed

[pokercat999]

8. I disagree, the slap in the face the country needed was regulation.

Limits on credit depending on your ACTUAL income to debt ratio and mortgages with 20% down payments enforced by lending laws would have prevented most Americans from getting in over their heads and would have prevented the housing bubble. But instead we have a government that gives $8,000 to buy a house, $4500 to buy a car and FHA mortgage loans with 3.5% down. They are trying to revive a dead economy and it simply will not work. Our economy is gone and will not return in it's current form. We must start and keep a manufacturing industry in the US, hopefully a sustainable green industry with world wide exports and build from there. Most Americans and especially the politicians and the administration can't admit this to us or even themselves because spoiled American consumers don't want to hear it.

[pokercat999]

4. This is interesting but not necessarily good news. Is it good that

Americans use credit less, yep, probably a good idea if it's because they have come to their senses. But what I have been reading lately is that Americans are simply cutting back on credit spending because they have NO CHOICE. They are, unemployed, maxed out or both. The ATM that was their house is empty, their credit card (if they still have one) is over it's max so their only available funds are their paychecks and whatever meager saving they may have.

The latest cut left total consumer credit at $2.47 trillion.

[ixion]

5. with Credit Cards forcing their customers to close their accounts or

or accept usurious terms, is it any surprise?

[ddeclue]

6. Finally, it's the big national collective F.U. to the credit card sharks!

I'm doing the same myself. Trying to pay off debt and get out from under these sharks.

[Xicano]

10. What ever happened to 'Lay Away'?

Its what my family use to do when I was a child. The only things I ever make payments with interest on, is, my house and my truck. Thats it.