Thread: Borrowing falls, 1st time since '98

NEW YORK (CNNMoney.com) -- Borrowing by consumers fell in August for the first time in more than 10 years as a weak economy continued to strain household budgets, according to a government report issued Tuesday.

The Federal Reserve reported that consumer borrowing decreased by $7.9 billion in August to $2.577 trillion from a revised $2.585 trillion in July.

The annual rate of consumer borrowing fell 3.7% last month. Credit card borrowing decreased at an annual rate of 0.8% while non-revolving borrowing, including student and auto loans, contracted by 5.4%.

Economists had expected borrowing to have increased by $5 billion in August, according to a poll conducted by Briefing.com.

Tuesday's report marks the first time consumer credit has shrunk since January 1998, when it dropped $4.7 billion, or at a 4.3% annual rate.

"This month's decline was predominantly due to a decrease in non-revolving lines of credit," said Sean Maher, associate economist for Moody's Economy.com.

Maher added that auto loans make up the bulk of non-revolving lines of credit and that the decrease in August reflects weak vehicle sales in the month of July.

"Gas prices were high in July and consumers' transportation budgets were squeezed, which translated to a weak appetite for new vehicles," he said.

While the 0.8% decline in credit card borrowing was less dramatic, Maher said that revolving credit has steadily increased on a historical basis and that the dip in August was "fairly significant."

"Consumers are becoming more reluctant to charge on their credit cards," he said. And as economic conditions have deteriorated and individual borrowers have had trouble making payments, "it's also clear that banks are being a lot more cautious."

Indeed, the Fed's most recent survey of senior loan officers showed that 65% of U.S. banks tightened lending standards on credit card loans over the three months ended in July.

The pullback in borrowing comes as American households have struggled with a severe downturn in the housing market, rising unemployment and high energy prices.

With consumer spending contributing two-thirds of the nation's gross domestic product, many economists fear the third quarter will be the first to show a decline in GDP since 1991.

First Published: October 7, 2008: 3:30 PM ET

http://money.cnn.com/2008/10/07/news/ec ... topstories

Why would we borrow money to buy a car or anything else when foreigners are taking our jobs with the help of OUR government??? Hellllloooo, anybody out there? Not only that but with the help of OUR government we are now another $850 billion in debt thanks to throwing said billions into a bottomless pit called Wall Street......Takes a genious to figure this out now then doesn't it?

Hopefully this country is getting over the "We want it all and we want it right now" mentality and will start planning and saving for expensive purchases from this point forward! Can anyone relate to financial responsibility...well, we know congress can't! Of course they, just like Wall Street now, don't have to spend their own money!

About 20 years ago I tried to convince a fairly grumpy old family friend that it was silly to pay $100,000 for one home, where I could take that money and make down payments on five homes, four of which I would rent. But those were the days in Florida when rental income actually exceeded mortgage and other expenses. He stood his ground, even though I felt I was right. But today, I clearly see his point: if you don't have the cash, you can't afford it.

Originally Posted by vortex

About 20 years ago I tried to convince a fairly grumpy old family friend that it was silly to pay $100,000 for one home, where I could take that money and make down payments on five homes, four of which I would rent. But those were the days in Florida when rental income actually exceeded mortgage and other expenses. He stood his ground, even though I felt I was right. But today, I clearly see his point: if you don't have the cash, you can't afford it.

That was a different time and your strategies worked then. That was the early stages of the debit revolution and we are now mired in its muck. For every action there has to be an equal and opposite reaction... Thanks Sir Isaac Newton! The sky was the limit then, but guess what? We have reached the sky! Brings new meaning for the phrase used by Yosemite Sam...."Reach for the Sky!"