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Higher debt means more confident consumers?
by Dave Reiner
Tuesday, February 8, 2011

I had to laugh while reading a businessweek.com article yesterday titled, "More confident consumers break out credit cards". A few days ago, I posted a chart of the growing number of food stamp participants and I am beginning to wonder if the increase in credit card debt was actually a result of consumers being broke and running up their credit cards in a last gasp before completely running out of options.

The article goes on to state, "Americans are putting more money on their credit cards after more than two years of cutting back, a sign of more confidence in the economy. The first increase in credit card use in 27 months helped boost overall consumer borrowing 3 percent in December, to a seasonally adjusted annual rate of $2.41 trillion. It was the third straight monthly gain."

This begs the question, if consumers are doing well, are they paying down their credit cards or charging up their credit cards? I would say most responsible people are paying down their credit cards when finances are going well for them. Of course there are plenty of people who abuse credit cards, but regardless the overall increase in credit card usage is disturbing whichever the case may be. Increased credit card debt is just a sign that consumers are being more risky with their finances. Is this good for the economy? Maybe people are using credit cards more because inflation is working its way through the economy as a result of QE 2 and they canít afford the price increases on fixed wages. Many commodities were up 20% last year alone. On February 3, the Food and Agriculture Organization of The United Nations reported that global food prices were up a whopping 3.4% in January. Or maybe those lucky enough to book big stock market gains by riding the coattails of the Fed are running up credit cards because they feel "wealthier" like people did when the prices of their homes were skyrocketing during the housing boom. Whichever the reason may be, I donít think increased credit card use is something to be excited about, although the mainstream media would like you to think that.


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