Consumer credit rises, but no one's smiling

A very empty shopping mall.

We are borrowing more.

In July we borrowed 4.4 percent more than we borrowed in the same month last year. How much money did Americans borrow in July? A whopping $2.853 trillion -- $10.4 billion more than we borrowed in June.

Conventional wisdom says this is a good thing: the more we borrow, the more we spend. And the more we spend, the more money companies make, which means they can make more stuff, and employ more people and grow. And as companies grow, so does the nation.

Unfortunately, that's not the kind of borrowing that we're seeing. People who borrow in order to spend, do so by hammering their credit cards. But the latest numbers from the Federal Reserve show that credit card borrowing (called revolving credit in the financial world) is falling: down 2.6 percent compared to last year. And this is the second month in a row that revolving credit is down.

Instead, so-called non-revolving credit, which means loans taken out to finance cars, boats, vacations and education, rose 7.4 percent compared to last year.

Wow! 7.4 percent! That's $12.3 billion more than last month! So where did all that money go? Not into cars: auto sales were down one percent in July. Maybe into vacations; we certainly traveled a lot in July. And maybe into boats: powerboat sales jumped 18 percent that month. But not that many people are buying boats these days. It seems likely that the real gains were seen in student borrowing.  And that's bad news.

Why? Because money spent on education doesn't filter into the economy in the same way. It doesn't provide retailers and producers with the same kind of shot in the arm that breaking out the credit card can.

Of course, some people might consider it a good thing that people aren't maxing out their credit cards at the mall -- shouldn't we be deleveraging right now, as opposed to loading up on debt? The problem is, of course, that we're not deleveraging. Borrowing is still up, but the money's not being spent on things that will help us recover. Instead, much of it is loading students down with debt that could hinder their progress through school and through life, and possibly create an even greater drag on the economy.

About the author

Paddy Hirsch is a Contributing Editor at Marketplace and the creator and host of the Marketplace Whiteboard. Follow Paddy on Twitter @paddyhirsch and on Facebook at


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