With the federal deficit coming down it takes more consumer and business borrowing to keep GDP (modestly) growing.

And note that student loans are reportedly responsible for half the gain.

Looks to me like it’s going to take a lot more consumer debt growth just to start lowering the output gap.

The largest gains are traditionally to be had in housing, but still no sign of that sector materially improving.

Nor is a proactive fiscal relaxation in the cards.

If anything there’s risk of taxes going up and more spending being cut.

Consumer borrowing rose $19.3 billion in December

Feb 25 (AP) — Americans accelerated their borrowing in December for the second straight month, running up more credit card debt and taking out loans to buy cars and attend school.

Consumer borrowing rose by $19.3 billion in December after a $20.4 billion gain in November, the Federal Reserve said Tuesday. The two increases were the biggest monthly gains in a decade.

Total consumer borrowing is now at a seasonally adjusted $2.5 trillion. That nearly matches the pre-recession borrowing level. And it is up 4.4 percent from the September 2010 post-recession low.

The rise in borrowing could be a sign that Americans are more confident in the economy. But consumers are also borrowing more at a time when their wages haven’t kept pace with inflation.

The outlook for hiring has improved, which could help boost consumer spending.

In January, companies added 243,000 net jobs, and the unemployment rate fell to 8.3 percent, the lowest in three years.

Still, without higher pay, many could pull back further on spending. Consumer spending was flat in December, and the savings rate fell. Consumer spending is important because it accounts for 70 percent of economic activity.

Americans borrowed more on their credit cards in December, likely to buy holiday gifts. A measure of that debt increased by $2.8 billion.

But the bulk of December’s increase was because consumers took out more auto loans and student loans. The category that includes both rose by $16.6 billion.

Ellen Zentner, an economist at Nomura Securities in New York, said that half the gain in that category came from higher student loans. That suggests the weak economy is persuading more people to go back to school.

23 Responses

  1. I never understood how more college degrees would boost aggregate demand and create jobs. But here it is, a consumer credit panacea, a college education. Wonderful.

    1. @Ryan,

      In theory, education, like technology and other forms of capital investment, is supposed to increase productivity (and thus living standards), not AD and employment levels.

      That said, an education that’s financed through borrowing, as opposed to personally saving up for future tuition payments, does increase current demand, all else equal.

    2. @Ryan, Ryan, Zerohedge has been doing a great job showing the debt slaves we are creating with all this student loan debt (which can’t be defaulted on like house, car, or credit debt), here is one of many articles at that site with some interesting statistics:


      Never fear though, I know many of our youth who are going to college just to PARTAY and never repay that debt while they keep pushing graduation further and further out, talk about a bubble that is certainly to bust! All my econ friends that got econ degrees now sit home and post on ECON blogs like here for FREE, and sit in mom’s basement playing Star Wars: The old republic, not a bad life for a 40 year old if you can get it 😉

    3. @Ryan, http://www.businessinsider.com/infographic-this-is-how-harvard-spends-the-38-billion-it-hauls-in-each-year-2012-2

      Harvard, where larry summers ran the show, Harvard states healthcare costs and pensions plan assumptions can not continue at the current rate of growth. What will all those professors do if they can’t get medical and a promised pension? Begotka move over in that dumpster, Harvards Econ PHd’s are about to dive in next to you 😉 400 THOUSAND babies born each day, good lord there aint enough space!!

  2. There is a lot of talk on the street that the student loan debt is the next bubble to pop along with all these fly by night “colleges” that have been opening up recently.

    Of course the student loan debt bubble may already be popping, I just haven’t seen any news of it reported in the media.

    1. @Paul,

      I’ve heard that chatter too, but I think it will depend on how (1) internal structure of the labor market and (2) structure of the US economy both evolve.

      To the extent that labor force participation is declining due to Baby Boomers entering retirement (or taking early buyouts–many older Boomers probably have enough personal assets to retire on), we might avoid a student loan disaster, as that will make *a lot* of room for new grads and post grads. In other words, if the necessary employment and incomes materialize, there’s no Ponzi unit at work. Remains to be seen how big a factor Boomers are in declining LFPR though, vs discouraged workers who might still compete for positions.

      Another factor will be the kinds of degrees being financed relative to the kinds of skills demanded as the US economy continues to evolve.

      Of course, govt policy errors can create Ponzi units in almost any sector of an economy.

      1. @WARREN MOSLER, the way I see it, there’s more and more students walking around with “blank checks” from the government. The schools eat them up, cash the checks and build their alumni centers and football stadiums, and the out of work graduate is stuck with a loan he can’t escape from.

      1. @Dan Kervick, not sure how many folks can actually pay the full tuition of a 4 year school out of pocket with no assistance regardless of the current climate.

      2. @Broll The American, Right hardly anybody. But as the family’s share of the total tuition and fees in the financial package goes down, the percentage of the package consisting of loans automatically goes up.

      3. @Dan Kervick, http://ocw.mit.edu/index.htm

        Broll the American, here is all of MIT’s courses, FREE, online, for the global masses. Now Broll, you are an employer, and some guy named Begotka comes up to you and says he reads lots of warren mosler blogs and posts there, and some other guy, Dan Kervick comes up to you and shows he has taken all these free online MIT courses, which is more employable to you? There is so much knowledge to be obtained from so many resources for FREE. I have so many peers that are debt slaves to that student loan drama, it has cost them thier families, wives, children, jobs, sanity, etc etc Some were doctors that are in no mental state to be running a practice but they have so many financial burderns to repay they can’t stop the insanity…. Loans for thier superboat double hulled yacht, loans for their MT900, loans for thier USVI beach house and palm beach main residence, it never ends.

  3. It’s terrible. The underlying need is more consumer income. But the Washington powers that be have forced the serfs to rely on more borrowing.

    Of course, our economic masters will probably portray this grumbling acceptance of increased peonage as a a rise in “confidence”.

  4. When the job market is weak, more people go to college.

    If a recent high school graduate could get a job paying $20/hour, they probably wouldn’t go deeply in debt to go to college.

  5. Unless dumpster diving is in the curriculum I do not understand what the benefits are for college here in the US and dumpster diving don’t make no loan payments.
    From here in the rust belt I see the smoke coming from the student loans and college people working at McDonalds.
    Warren I do admire your ability to make it sound like there is a chance…………

    1. @Dave Begotka,
      “Warren I do admire your ability to make it sound like there is a chance…………”

      BWAHAHA! LOL! Begotka, you must look at the really big picture! We get the rest of world to WORK for us, like china slave laboring thier children to make ipads. Then you and I sit around all day on those ipads posting for FREE on econ blogs with our valuable time that we could instead be using to play Elder Scrolls on playstation 3.

      Some youth realize TEAM USA is just one big PARTAY and decide school loans (that will probably be securitized and sold to those wonderful asians at some point) are a good thing to get so they can go do some focused formalized PARTAYING at college.

      Who knew that John Belushi film ANIMAL HOUSE was a documentary for our future. 😉

      According to very extensive research detailed in a new book entitled “Academically Adrift: Limited Learning on College Campuses”, 45 percent of U.S. college students exhibit “no significant gains in learning” after two years in college.

      #7 Today, college students spend approximately 50% less time studying than U.S. college students did just a few decades ago.

      #8 35% of U.S. college students spend 5 hours or less studying per week.

      #9 50% of U.S. college students have never taken a class where they had to write more than 20 pages.

      #10 32% of U.S. college students have never taken a class where they had to read more than 40 pages in a week.

      #11 U.S. college students spend 24% of their time sleeping, 51% of their time socializing and 7% of their time studying.

    2. @Dave Begotka, Remember Begotka, it was the dumb bankers that did originate-to-distribute and kept some of that garbage that were hurt, the smart bankers did originate-to-distribute and sold that hot potato IMMEDIATELY, knowing the music for the musical chairs could stop any second…

  6. so most of the borrowing increase is accounted for necessary items like cars, and for the better chance of finding the job (education).
    Nevertheless, it is a new money added to the economy by those people sacrificing themselves and taking on debt so aggregate demand could grow – until the amounts being returned are larger than total amounts being borrowed.

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