Is more borrowing a good sign?
Date posted: December 11, 2012
Government data show consumer borrowing for mortgages, car loans and other reasons is beginning to rise after several years of falling. N.C. State University economist Mike Walden considers whether this is a positive sign for the economy – or if it means trouble ahead.
“Before the recession, I think, and then when the recession hit, borrowing really got to be a bad word, because many people realized that when the recession hit, their housing values went down. Their investment values went down. They had this high debt. They couldn’t carry that debt, and that led to many, many problems.
“But borrowing, of course, is not bad if you do it logically. If you’re borrowing for the right things, and if you’re making sure that borrowing stays within your budget. And obviously as people do borrow and spend that money, that does lead to economic growth and jobs. So borrowing actually can be a plus for the economy.
“Now, you’re absolutely right. Borrowing is beginning to come back. And many economists think that’s actually a good sign — one reason being that households were in much better financial shape now than they were when the recession hit. Households have paid off $1.2 trillion of debt in the last five years. They have been saving more money. And I think they’re much better in a position to buy things on time, like vehicles. …
“Household wealth is also rising as the housing market and the stock markets have come back.
“So, I think that the borrowing that we’ve seen going up recently is actually a good sign. It could be momentum for an improving economy.”
Category: Economic Perspective