It's a fine line... deflation will follow, which will be great for a while and then the monster of inflation will poke its ugly head out.

"Late payments on eight different types of loans, including auto lending and personal loans, rose 8 percent from the previous quarter to a 29-year high, the group said."

Looks like people are just plum out of cash..

good questions at the end there, chris. yes, the number of people in default has been steadily rising (as has the number of people without a job). that's a big factor. but there are still a lot of creditworthy, money-making people out there & a lot of them are simply not borrowing money. & to top it off, lenders are tightening up credit standards to the point that the only people that qualify are quite frankly people that normally don't borrow money.

one important trend i've noticed is that the interest rates of consumer loans have become disjointed from market rates that normally guide them. even though prime is at 3.25% & the fed funds target rate is at 0-0.25%, consumer lending rates have skyrocketed - look at how credit card banks are starting to jack the rates of even their best customers to ~20%! i assume the main reason for this is a lack of money to lend - investors simply aren't willing to risk their money for a yield that doesn't even match the rate of inflation.

from a lending standpoint, things are starting to get a little scary. financial institutions simply cannot afford not to lend - it's how most banks make their money. if something doesn't break soon, i think we can expect another round of banks circling the drain within the next 12-24 months.

It seems to me that consumers aren't borrowing because no-one's lending. I know more than one kid who's had to drop out of college for a semester because there are no more loans to be had... I have other friends who have managed to get a mortgage for a new house (great time for late 20somethings / early 30somethings with good credit to get that starter house) but they had to shop it around way more than a couple with their credit would have had to two years ago...

!!!

That picture is of a NatWest Bank piggybank ("Maxwell" in fact) by Wade potteries, as given to kids in the UK in the early 80s as a reward for saving. I think you got Maxwell when you'd reached the dizzy heights of £50 in your bank account.

I know this 'cos I managed to save a whole £100 in birthday money and collected all five of the pigs when I was a kid. Then I rescued them from my mother's attic and sold them on eBay.

Um, sorry. pertinent to the matter at hand at all, but oh well.

Um...could it be because no one is lending? You can't get a mortgage, credit card companies are slashing credit limits left and right. Maybe people would be borrowing...if they could!

@nicemarmot617: This is crap. You can still get a mortgage, you're just going to have to put some money in the deal. By historical standards the mortgage market is fairly loose, it's just that we've become used to 100% or 110% loans with no income verification. Now banks want to make sure they're not going to get screwed. GMAC just lowered its standards for lending to a 620 FICO score.

SOME lending is going away. Namely the bad lending. Both consumers and lenders are trying to lower their risk and I, for one, think it's a great thing.

And all it took was a housing crisis, a recession and the fall of the American auto industry.

Kudos.

@MsAnthropy: You might like this Flickr photo set, then. It's where I found the photo. Nostalgia!

[flickr.com]

@rugman11: I've noticed, though, that in the past three months the number of credit card offers I get in the mail has decreased from three or four a week to none.

@rainmkr: Deflation isn't as great as it sounds, it can spiral out of control very quickly

@rugman11: +1

This is good. We need more.

We have to stop borrowing and spending money, and we need to start saving.

And we need a president who agr--oops, two months too late for that.

Let's just hope people put their stimulus check in the bank instead of spend it.

@MooseOfReason: While I love for people to save this is not the time for that action. Saving will only cause this economic crisis to worsen and potentially lead to deflation and stagflation making those savings worthless.

Sad to say it, but this is the time for those crazy spenders to save the day. When things normalize we can get to the business to saving.

@EtoilePB:

I'm planning on buying a house this spring, and I hope you're wrong about this. I haven't applied for a loan yet; I've been saving for my down payment. It will really suck if I, who is well employed with good credit, won't be able to get a loan.

@nicemarmot617: @rainmkr: A fine line indeed!

Well known by those that frequent consumerist, debt can be destructive on the micro level as well as the macro level. John Kenneth Galbraith's examination of the 1929 stock market crash concludes it largely result of overspeculation funded by easy credit available due to the Fed rediscount rate reportedly made low to aid Britain as it suffered the ill advised economic policy of Winston Churchill.

Nonetheless, basic economic theory requires debt as a primary vehicle for growth. As I recall TARP funding and the rediscount rate adjustment were reportedly intended to stimulate the lackadaisical lending market so that the economy could get rolling again. Unfortunately banks instead mostly used the money to bolster their business (and stock prices) by hoarding it or using it as aid in purchasing other banks at the Heavily discounted prices available immediately post Lehman.

Though it is likely an unrepresentative sample, neither of the two people I know who have recently sought loans were able to secure them--a student loan for one with lackluster credit and a commercial property loan for one with perfect credit and collateral. So too has the decade sustained remodeling contractor nearby shut down, in an area dominated by century old homes no less. I'm no expert, but though some people make poor borrowing decisions and end up in an unenjoyable micro position, this decreased macro level moneyflow seems like a bad thing.

@nicemarmot617: this no one is lending talk is bullshit.

I never borrow money because I hate the idea of oweing somebody money.

@joepa1: Wrong. Buying things is how we got into this mess. People borrowed money to buy things they couldn't afford. The bills came due and they couldn't pay the money back. More spending will cause more trouble.

Also, you're contradicting yourself. Stagflation means inflation, so unless you're saying that people saving money instead of spending it, will cause inflation and deflation at the same time, you might want to fix that.

Look how well government intervention is going so far. The bank bailout bill sent hundreds of billions of taxpayer dollars to a bunch of banks. It wasn't their money, so they weren't as careful as they would be if they were spending their own money. Was the money used for its intended purpose? The banks sure won't answer. We do know that they've been sitting on some of it, or using it to acquire other banks.

"Crazy spenders" to save the day? How long do you think people can keep spending? If people were spending, the government wouldn't have to borrow $1 trillion from China to give to US citizens to buy things from China.

Our economy is phony. It's built on people spending money - 70% of it - instead of saving and producing. People have to start saving money FOR things to normalize. For that to happen, we need a recession.

I think this is sort of proof that the consumer credit crisis is a lot of hogwash. Unfortunately the only other person to think so with any shred of credibility is Dave Ramsey. Seems like all the other so called experts are claiming that consumers NEED the super easy credit of the past several years.

@tbax929: My friends who were just able to buy a house are in their late 20s (28/29), both employed full-time, and have good credit -- and they were, indeed, able to get a loan. It just took longer than it would have for a couple of their same stats in 2007.

@b.k.: Don't worry. I still get enough for both of us.

Do these stats still count the debt that consumers have defaulted on? If they don't count that against consumer debt it could explain the drop.

I want more info on their data!

@th1nwhiteduke: Yeah, a lot of this is the media playing it up. You watch the local news and they'll have you believe everyone who took out a loan in the past 5 years is getting foreclosed on, nobody has a job, you'll get kidnapped/robbed/shot/raped by leaving the house, the terrorist are gonna kill us all, the country will dissolve and we'll all be Grapes of Wrath by next month. Then you go outside and see crowded malls/restaurants, people shopping spending etc like they always did and things are rather uneventful..

@EtoilePB: We're looking to get a student loan because we're considering one of us going back to college for a second degree...we both have excellent credit and the only debt we have is a car loan. I'm hoping things will be okay for us as we shop for a loan.

@b.k.: I still get one or two in the mail every week or so...and it's ALWAYS Discover Card, even if I get two in a week, they're both from Discover, offering different cards.

@Hooray4Zoidberg: There was a story on Yahoo that was absolutely appalling to me...that there are homes selling for as low as $1,000 in some areas of Detroit, among other cities. What the article didn't even mention was the factors involved such as what kind of shape the homes were in, what kind of land was involved (size, condition of land), where the homes were located (good neighborhood, bad one, etc.)...it total crap that homes are selling for $1,000 when they were previously worth $400,000. That just isn't true. The homes that are selling for $1,000 probably weren't worth a significant amount more than that previously.

I'm so tired of this panic the media likes to circulate. Employment forecast is bad, it's looking real bad this time...okay...but who is losing their jobs? What kinds of jobs are being lost? Are they counting the employees of the automakers that closed their plants to save costs? These are things that I think people need to know and understand before they begin hiding money in their mattresses and screaming the world is ending.

@MooseOfReason: You can't spend unless you borrow. Putting money back into the economy by buying DVDs and TVs is one thing, but the big purchases, the investments people make in education, homes, cars, those are the ones that might help the economy in the long run. The problem is, who do you lend to? You need to find the responsible people, and right now, everyone is being more cautious with their money.

I agree people need to save - but they also need to be investing, and the only way to do that on a large scale is to have a loan. There are very few people who can ever save enough to buy a $50k home, let alone a $200k home or condo in any metropolitan area, which is generally where the most lucrative jobs are located.