Americans Pay Back Debts Most Since 1952 as Joblessness Increases Savings

[Purveyor]

By Caroline Salas and Michael McKee

July 21 (Bloomberg) -- For the first time since Harry S. Truman was in the White House, Americans are paying back their debts, a phenomenon that just might help keep interest rates low as the Treasury sells a record $2 trillion of bonds and rising unemployment increases U.S. savings.

While the proportion of consumers without jobs rose to 9.5 percent last month, household borrowing fell to 128 percent of the average family’s after-tax income in the first quarter from a record 133 percent in the same period a year earlier, according to data compiled by Bloomberg. The total debt of individuals, nonfinancial companies and federal, state and local governments grew at a 4.3 percent pace at the start of the year, down from a peak of 9.9 percent in the fourth quarter of 2005, Goldman Sachs Group Inc. estimated.

“We’ve never seen a pullback like this,” Goldman’s chief U.S. economist, Jan Hatzius, said in an interview from his New York office. “We are seeing an adjustment, and it’s very painful and there’s a lot of collateral damage.”

The 0.7 percent contraction in debt among households and nonfinancial companies from January through March was the first since 1952, when Truman was president and the government began keeping the records, Hatzius said.

Consumer credit fell at an annual 1.6 percent rate in May to $2.52 trillion, according to the Federal Reserve. Reduced spending may slow the recovery from the first global recession since World War II because U.S. households generate 17 percent of global gross domestic product, according to Sara Johnson, a managing director at IHS Global Insight in Lexington, Massachusetts.

Banks Buying Treasuries

At the same time, rising unemployment helped lift the U.S. savings rate to 6.9 percent in May, the highest since December 1993. That’s keeping Treasury yields in check because banks are pumping deposits into the bond market instead of making new loans.

More...

http://www.bloomberg.com/apps/news?pid=20601213&sid=arUgjalkdR2g

[scheming daemons]

1. It doesn't help the economy grow, but in the long run, it is a good phenomenon

Americans need to get a "saving" ethic.

[gratuitous]

2. Bad news for rapacious capitalism

Mindless consumerism has been the backbone of our economy since the horrible Reagan years. Consumers started wising up in a big way when gas hit $4 a gallon, and as the overheated economy contracts, consumers seem to be paying closer attention to all kinds of expenses they used to incur without a second thought.

This might just lead to a sounder economic model, based more on providing good quality consumer staples, and less on hawking useless gewgaws at highly inflated prices. It might mean fewer billionaires, but a more stable job market and development scheme.

Which would be further bad news for Republicans.

[Warpy]

3. Too little too late for most of them, I'm afraid

but it's good that people are learning that while income can come or go, the creditors will always be there with their hands out no matter how much money they have...or don't have.

I cautioned people to pay their debt down quite a few years ago because I not only saw the writing on the wall as far as jobs go, I also saw what the credit card companies were set to pull in terms of changing terms on people without notice.

Debt is poison. The less of it you can manage to accumulate, the better.