As Home Values & Mortgages Crash, Guess What Consumer Credit is Doing?

By Lee Russ

Thursday, August 16, 2007 at 04:36 PM

According to a report in Business Week, consumer credit debt--especially revolving credit such as credit card debt--is mushrooming:

Consumers boosted their borrowing more than expected in June, reflecting another hefty jump in credit card debt.

The Federal Reserve reported Tuesday that consumer credit rose at an annual rate of 6.5 percent in June. It marked the second straight sizable gain. Consumer credit rose by an even larger 7.9 percent in May.

The increase was led by an 8.4 percent rate of increase for revolving credit, the category that includes credit card debt. The category that includes auto loans rose at a 5.3 percent rate, the same as in May.

Total consumer credit rose by $13.2 billion in June to a record $2.459 trillion. The increase was double what economists had been expecting.

Consumer credit as measured by the Fed does not include mortgage debt. Analysts said the big rise in consumer credit reflects the slumping housing market and growing troubles in mortgage markets.

...

Homeowners are unable to borrow against their homes so they are turning back to their credit cards," said Mark Zandi, chief economist at Moody's Economy.com.

Zandi predicted this trend would continue for the next year or so until the housing market stabilizes and home prices start rising again.

If the credit card debt continues to rise at anything near these percentages, get ready for a wave of consumer bankruptcies within a year.

Not that this would likely put a dent in overall credit card debt, given the new bankruptcy rules and the report that bankrupt consumers still get flooded with offers of more credit:

Credit-card companies target people fresh out of bankruptcy with credit offers, according to a study that found that nearly 100 percent of more than 300 families surveyed had been offered new credit cards within a year after completing Chapter 7 bankruptcy proceedings. The findings show "how the credit industry seeks to profit from financial distress," said the study's author.

And I'm still waiting for one of the presidential candidates--of either party--to really acknowledge the extent of the economic misery swamping the lower half to lower third of the economic totem pole. Even John Edwards seems reluctant to talk about how bad things are, and how much worse the indicators show they are likely to get.

Must be time for another Homeland Security/Terrorism threat, don't you think?