With the economy recently, even good news is bad news. The Federal Reserve announced that in November 2009 Americans borrowed $17.5 billion less on their credit cards than the previous month. To illustrate what a big shock this was, economists had predicted that the decline would be $5 billion. It was the largest month-to-month drop since the Federal Reserve started keeping track in 1943. It was also the tenth consecutive month that total credit and borrowing on credit cards fell.
Economists have been warning for years about Americans' overreliance on credit, so borrowing less would seem to be good news. But, the bad news is that if Americans aren't borrowing they aren't buying. The American consumer is the engine that runs the economy. Consumer spending accounts for about 70 percent of U.S. GDP. Less buying means that it will be that much harder to jump start the recovery. With less demand, manufacturers and retailers will continue to shed jobs and not hire.
Still, on the plus side, Americans appear to be thinking differently about debt. Whereas before, many Americans almost felt nonchalant about purchasing on credit, there is more recognition today of the dangers of debt because tomorrow will not necessarily provide money to pay for today's purchases.
And consumers are not the only ones who have changed their habits. Before, credit card companies lent money wildly, in total disproportion to customers' abilities to pay. However, they have cut lending, as consumers have less income and are thus bigger risks.
To return our economy to prosperity, the country will have to rely on consumers' renewed hunger for purchasing goods. Hopefully, though, Americans can return to that mindset without renewing their unhealthy comfort with credit card debt.
