Government Helps Boost Consumer Credit in October

More

Consumer credit rose at an annualized rate of 1.7% in October, according to the Federal Reserve. That might not sound like much, but it's the biggest monthly increase since July 2008. Yet this doesn't signify that lenders are extending more credit to consumers. Instead, this increase was based on new credit issued by the U.S. government.

To get a better understanding of how consumer credit has changed, here's a chart:

consumer credit 2010-10.png

If you look at the past few months, you can easily see that the slight increase in total credit is being driven by nonrevolving credit. Revolving credit has actually continued to decline, now for 26 straight months. In October it fell at an annualized pace of 8.4% or $5.6 billion. Nonrevolving credit more than made up for that decline, however, since it rose by 6.8%, or $9.0 billion.

The major influence responsible for more credit is quite clear. Here's how the balances of debt held by various creditors changed since August, on an annualized basis:

consumer credit holders 2010-10.png

No, that's not a typo. Over the past two months, the government has been increasing its holdings of consumer credit at an annualized rate of 139.3%. Meanwhile, almost every other type of credit holder has shrunk its balances, except for saving institutions which increased their debt holdings by 7.4%.

So what exactly is the government backing here? It's all nonrevolving credit, since credit cards aren't in its portfolio. Of its nonrevolving credit holdings, loans backing purchases like cars and boats don't likely make up a big portion. Real estate is also excluded from the Fed's calculations. That leaves mostly student loans. The government is clearly ramping up its exposure to education loans very quickly as private lenders have mostly abandoned the market.

As you can probably guess, without the government's influence here, credit would have continued to decline over the past two months, instead of beginning to rise. And since education loans aren't as discretionary as credit cards, auto loans, or other consumer credit products, this implies that Americans and private lenders are generally still reducing credit. Revolving credit, in particular, has now fallen by 17.8% since it peaked in August 2008.

Jump to comments
Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
Get Today's Top Stories in Your Inbox (preview)

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity


Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity

Video

Is Technology Making Us Better Storytellers?

The minds behind House of Cards and The Moth weigh in.

Video

A Short Film That Skewers Hollywood

A studio executive concocts an animated blockbuster. Who cares about the story?

Video

In Online Dating, Everyone's a Little Bit Racist

The co-founder of OKCupid shares findings from his analysis of millions of users' data.

Video

What Is a Sandwich?

We're overthinking sandwiches, so you don't have to.

Video

Let's Talk About Not Smoking

Why does smoking maintain its allure? James Hamblin seeks the wisdom of a cool person.

Writers

Up
Down

More in Business

Just In