We are painfully aware in 2013 that any "growth" we might see in the American economy is dependent on ever greater amounts of debt. The reason is simple, and not often discussed—since 1980, incomes for the large majority of Americans have remained flat when adjusted for inflation. Almost all of the income gains over that period went to the wealthiest Americans, a trend which has only intensified since the financial meltdown. I will discuss that subject tomorrow in the context of "potential" output (GDP). This is a prequel to that post.
Before I get going here, I want to emphasize that the elites who run this country, and their Keynesian mouthpieces, are unwilling or unable to acknowledge the true situation with debt and income. This failure seems to result from some potent combination of self-interest (e.g. Jaime Dimon, Peter Orszag) and self-delusion (e.g. Paul Krugman, Mark Zandi).
The Federal Reserve recently issued its Consumer Credit (G.19) report for the 4th quarter of 2012. And what a depressing document it is. In a remarkable story called U.S. consumer borrowing up in December behind auto, student loans; but credit card use falls, the ever-reliable Associated Press service summed up the situation—
WASHINGTON — Americans stepped up borrowing in December to buy cars and attend school. But they cut back sharply on credit card use, continuing a trend that could hold back growth this year.
Read that again, because you will never find a more succinct statement describing the current economic situation in the United States. Economic "growth" may be held back this year because Americans are not borrowing enough money.
Consumer borrowing rose $14.6 billion in December from November to a total of $2.78 trillion, the Federal Reserve said Thursday. That’s the highest level on record.
The increase was driven entirely by gains in student and auto loans. Borrowing in the category that measures those loans increased $18.2 billion to $1.93 trillion. That’s the biggest monthly gain since November 2001.
The highest level on record. Read it and weep.
This chart courtesy of December Consumer Credit Growth Continues. Total Consumer Credit Outstanding – total consumer credit (blue line) vs total consumer credit without student loans (red line)
At least when you borrow money to buy a car, you get a car out of the deal. Borrowing money to finance a college education, especially if you borrow a lot, is just a roll of the dice. Your lifetime earnings may justify that "investment" but just as easily may not.
I note in passing the pernicious idea that getting an education is thought of as merely an investment, i.e. a financial transaction. Nobody running this corrupt country seems to think that being educated in and of itself is a good idea, excepting for themselves of course. Our rulers promote this view for obvious reasons. Education for the masses is an idea that didn't "stick" in the United States. Before World War II and the G.I. Bill, a college education was the sole province of the monied elites. Now the hoi polloi can go to ever more expensive trade schools called state universities and the like, and they get to pay an exorbitant price for this "investment" of their time and energy. What a deal!
The bad news in the Fed's report according the Associated Press was that "revolving credit" (credit cards, payday loans, etc.) fell off in the 4th quarter.
Credit card debt, however, fell $3.6 billion to total roughly $850 billion. Total credit card debt has declined 17 percent since July 2008.
Americans have been relying less on their credit cards since the Great Recession. And December’s decline could also be a signal that consumers were worried about higher Social Security taxes that began lowering take-home pay this year.
From Tim Iacono's Consumer Credit Surges, Credit Card Balances Decline
If you've got your head screwed on straight, you know just as well as I do that the "good news" here—the expansion of non-revolving student and auto loans—was actually bad news, and the "bad news"—the contraction of credit card debt—was actually good news.
Lucky us, to live in a society where common sense and morally right behavior have been stood on their heads.