Delinquency rates on consumer loans and credit cards fell to a new all-time low in the first quarter of this year.
Abstracting from student loans, which are growing at a (frightening) 20%+ annual rate and now make up some 20% of all consumer credit, banks have not aggressively expanded their consumer lending activities, as shown in the chart above. This presumably owes much to tighter lending standards and to consumers' desire to deleverage. But there has not been a wholesale curtailment of consumer lending that might explain declining delinquency rates. Falling delinquency rates thus are most likely a sign of improving consumer finances, prudent lending standards, and greater job stability.
If there is anything to worry about, it is the still-rapid expansion of student loans that began in early 2009 when the federal government essentially took over the student loan market. The other day I helped my daughter apply for a $20,000 student loan and it took her about 5 minutes online to qualify. Surprisingly easy. Probably too easy for most, and a likely source of future problems. With easy access to federally-provided credit, students are enabling colleges to continue charging what in many cases are exorbitant amounts.
Watch out for the seemingly-inevitable bursting of the higher education bubble. In the meantime, declining consumer delinquency rates are a healthy sign.
I think Dr. Perry ran a chart recently that business loans were in better shape then ever, also.
ReplyDeleteMeanwhile, you have central banks in Japan, USA, China, Thailand, Taiwan, Indonesia talking about growth, not fighting inflation (which is dead anyway). Who would have thought it: Japan is leading the way.
Only the ECB, influenced by a Teutonic heritage and phobia about inflation, is not getting on the growth bandwagon.
Real estate in the Far East is booming, and a long run ahead.
SG: Is the student loan number correct? That turns out to be about $180B per year over 3 years. Which in turn is about +1.2% of GDP per year. Which could be 1/2 of our real GDP growth? Seems absurd, please clarify. Thanks.
ReplyDeleteCredit Suisse ("A Lesson On Student Loans", July 5, 2012) puts US student loans at $1 trillion at the end of Q1 2012. Don't know why Scott omits 30% of that number. $1 trillion, in my world, is almost 50% of the $2.2 trillion or so his chart seems to suggest. He knows why he excludes student loans! (Because if included, the consumer is far from deleveraging, and, delinquency rates, at 12%+, are skyrocketing).
ReplyDeleteYes, a lot of the cash on Apple's balance sheet is probably coming out of the pockets of students thanks to student loans.
It's the new "Mortgage Equity Withdrawal" money machine.
Btw - 45% of all auto financing in the US is now subprime or deep subprime. Nope, nothing to worry about. Just keep buying those AAPL, LULU and other darlings. It can't go wrong.
Re: student loans. The $450 billion increase in student loans outstanding since 2009 does not imply, nor does it necessarily account for, any portion of the real growth of the economy during that period.
ReplyDeleteRe: the discrepancy between student loans as reported by the Fed and by others. I am aware of this discrepancy but am only showing numbers provided by the Fed for the sake of consistency. It's quite possible that student loans have grown by even more than the Fed numbers suggest, but that doesn't change the thrust of my argument.
ReplyDeleteSG: The $450B is meaningless with regards to the real growth of GDP?Astounding!!! Instead of a simple declaration please give a better explanation of how this money that was created out of thin air and spent, I might add, does not show up in GDP.
ReplyDeleteRe: the impact of debt. To begin with , see my post on the subject here:
ReplyDeletehttp://scottgrannis.blogspot.com/search?q=debt+misconceptions
In short, the money lent in the form of student loans was not created out of thin air; it was borrowed from someone. Debt is a zero sum game: it does not create new demand, it merely redistributes money from lender to borrower. Debt can facilitate growth, but it does not necessarily create growth.
Those whom are not concerned about student debt and it's ever rising level are out of touch...
ReplyDeleteThis is a wealth transfer to non-producers (the educating industry) which through regulation and licencing has created a self-serving monopoly; providing high inflation for their many irrelevant services..
The students (Talibans) will graduate with a diploma and high debt and thus will be unable to enter the consumer market...
This is another government produced debt bomb, which is happily ignored by those who embrace debt...
Debt is only an asset if it is paid off; of which many will never do so which means it becomes a liability for the taxpayer...
The US House has adjusted student loans to the 10 year note!
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ReplyDeletehttp://im-an-economist.blogspot.com/2012/05/graph-of-week-student-loans.html?showComment=1424406707141#c4826539259168096292
ReplyDeleteMake sure to have a feel of the walls inside the property, too – if they're cold, that's a sign that the insulation is poor (and could eventually lead to damp in the walls).
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