Consumer Debt Slows

I read today that Consumer Debt growth has slowed to it’s lowest pace in 9 months.

Growth of revolving debt, such as credit cards, increased $609 million, or 0.8%, to $876.2 billion, after soaring by $9.9 billion, or 13.8%, in November. It’s the slowest growth in credit-card debt since March.

Later on the article states that non-revolving debt (like for cars and mortgages) actually increased at a faster rate since back in August. They theorize that lower interest rates encouraged people to refinance their homes and consolidate their credit card debt. So, if you take into consideration the fact that personal spending has gone down to its lowest rate since the great depression, it makes you wonder what will happen when people inevitably rack up credit card debt again. The Market Oracle has a sobering article on one possible outcome of all this debt:

In truth, the dollar rests on the crumbling foundation of consumerism and oil. The American consumer’s gluttonous appetite for spending has kept the greenback flying high for decades. Economists marvel at America’s lust for electronic gadgetry, the latest fashions, and useless knick-knacks. They call our profligate spending “the engine for global growth”; and indeed it is. No other country in the world is nearly as addicted to binge-spending as the US consumer. As long as he can beg, borrow or steal his way into the shopping mall; the orgy of spending is bound to continue. (Consumer spending is 70% of GDP)

Regrettably, there are signs that the US consumer is beginning to buckle from the weight of personal debt. The Associated Press reported just this week that “people are saving at the slowest rate since the Great Depression… and the Commerce Dept stated that the nation’s personal savings rate for 2006 was a negative 1%, the worst showing in 73 years.”

Additionally, credit card debt has skyrocketed, which is an indication that homeowners are no longer able to siphon easy-money from their home-equity. The nose-diving real estate market has slowed refinancing to a dribble; cutting off the additional $825 billion of cash which was extracted from home-equity just last year.

Clearly, the well is running dry; the housing bubble is hang-gliding into the abyss and there’s nothing Fed-master Bernanke can do to save it from its inevitable crash-landing.

Now, I don’t know the author, maybe he’s a gloom n’ doom kind of guy, but this article certainly gives me pause.