Friday, December 12, 2008

America tightens its belt

After seeing huge declines in their net worth, consumers are paying down their debt. The third quarter is the first on record, since 1952, where debt declined. Also, businesses are reducing their borrowing.This is bitter medicine, but it will be good for us in the long term.
ECONOMIC REPORT
U.S. households pay down debts for first time

Net worth plunges at 18% annualized rate in third quarter, Fed data show
By Rex Nutting, MarketWatch
Last update: 1:34 p.m. EST Dec. 11, 2008
Comments: 446
WASHINGTON (MarketWatch) -- Stung by the loss of more than $2.8 trillion in their net wealth, the nation's households paid down debts in the third quarter for the first time since at least 1952, the Federal Reserve reported Thursday.
As of Sept. 30, the total outstanding debt for households shrank at an annualized rate of 0.8% from $13.94 trillion to $13.91 trillion, the Fed said in its quarterly flow of funds report. It's the first decline in household debt ever recorded in the report.
Households paid off more mortgage debt than they took on for just the second quarter on record. Mortgage debt fell at a 2.4% annual rate to $10.54 trillion, as foreclosures mounted and fewer new mortgages were taken on.
Other consumer debts, such as credit cards and auto loans, increased at a 1.2% annual rate in the quarter to $2.6 trillion.
Total U.S. domestic nonfinancial debt increased at a 7.2% annual rate, boosted by a postwar record 39.2% increase in debt taken on by the federal government, mostly to fund the Federal Reserve's massive efforts to provide liquidity to credit markets. Excluding federal debt, U.S. debts rose at a 1% annual rate in the quarter.
Business debt increased at a 2.9% annual rate, the slowest in five years. Corporate debt rose at a 3.7% annual rate, a four-year low. Read more here.

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