The good and bad of rising consumer debt
Look at it from one angle, and rising consumer debt is a really good sign.
“Folks are starting to get out of their shell or feel a little more comfortable spending again,” says Jordan Levine, an economist at Beacon Economics. He says the fact that we’re borrowing more for cars, student loans and credit card purchases, “shows that this recovery isn’t a one trick pony if you will.”
Nope, this is a multiple trick pony. But some of these tricks are more promising than others.
Barry Bosworth, from the Brookings Institution, says more auto loans are a sign of improvement: “It is consistent with the view that consumers are getting more confident with the economic recovery and are willing to go out and make durable goods purchases.”
But, the $1 trillion in student loan debt is less reassuring:“I think the bad news is the growing reliance on student debt and the burden that’s placing on a lot of young people,” says Bosworth.
There’s another question to ask to get a sense of the goodness or badness of these debt numbers, who’s borrowing and why? “We are seeing higher rates of growth in the subprime areas,” says Atif Mian, an economics professor at Princeton, and co-author of the forthcoming book “House of Debt.” Mian says the problem is that a lot of these people aren’t seeing their income go up.
Which means some of this debt growth isn’t sustainable, or repeatable. At least in the long run.
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