by Bill McBride on 2/07/2013 03:08:00 PM
Thursday, February 07, 2013
I rarely mention consumer credit, but the amount of credit outstanding has been steadily increasing as is normal in a recovery. This is OK if the borrowers can repay the debt, unfortunately much of the recent increase has been related to student loans - and student loan defaults are increasing.
From the Fed:
Consumer credit increased at a seasonally adjusted annual rate of 6-1/2 percent during the fourth quarter. Revolving credit was little changed, while nonrevolving credit increased at an annual rate of 9-1/2 percent. In December, consumer credit increased at an annual rate of 6-1/4 percent.Consumer credit increased $14.6 billion in December, with nonrevolving credit increasing $18.2 billion (this includes auto, student and other loans).
Also, talking about credit, from Fed Governor Jeremy Stein: Overheating in Credit Markets: Origins, Measurement, and Policy Responses
The question I'd like to address today is this: What factors lead to overheating episodes in credit markets? In other words, why do we periodically observe credit booms, times during which lending standards appear to become lax and which tend to be followed by low returns on credit instruments relative to other asset classes? We have seen how such episodes can sometimes have adverse effects on the financial system and the broader economy, and the hope would be that a better understanding of the causes can be helpful both in identifying emerging problems on a timely basis and in thinking about appropriate policy responses.This is an important topic.