Monday, August 30, 2010
Credit is finally available, but no one wants it.
Banks are now providing more credit facilities to individuals and small businesses. However, the demand for credit is not increasing as fast as we would have expected. People are more focused on saving than on taking loans.
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This article raises a good question, "Why are Americans not taking advantage of the credit banks are now offering?" The author argues that it's because, "There's a growing distaste for credit. The American consumer is the child who ate too much and spoiled his dinner. And even if you hand him his favorite meal on a silver platter, he's just not that hungry." I see the point in this but I also wonder if the reason is more out of job and economic insecurity than distaste for credit. Consumers are still wary of the economy and their job security. I believe that until unemployment numbers go down further, Americans will continue to avoid additional debt. The more you fear unemployment the more likely you are to payoff debts rather than obtain new ones.
ReplyDeleteI agree with Cheri. Considering people are still trying to pay off their previous debts and are either unemployed or can be easily laid off it is unlikely that they will take advantage of the easy credit lending facilities.
ReplyDeleteIt seems as if they are either spending what they have and no more, or just saving up their earnings in case in the future they experience a financial crunch.
I think it is going to be a while before people actually have the stomach to spend more than what they can afford after having experienced such a bad downturn.
I share the same thought as Cheri and Tanvi, but I think the reason for the current frozen credit flow is because the market as a whole is still shrinking to a more sustainable size, which make small business to compete much harder for market share, which end up making borrowing more is taking more risk.
ReplyDeleteAs noted, Americans are exhausted in a time of uncertainty. It is growing ever clear that cash is more of an asset and more reliable than an uncertain investment. Per the ARRA funding - capital has become cheap and becoming more undesirable among small businesses and consumers. There has been a shift from risk to security, explaining why no one is biting at the increased availability of credit.
ReplyDeleteThis article raises a very solid point.
ReplyDeleteI believe people and firms are choosing to save and not spend because they are not "spending confident." We are looking at a confidence game right now. People/firms have money, there is a current savings rate of 6%; big companies have money. No one wants to stick their feet in the water until they see someone else doing it first--hiring or spending.
A little more help from the govt. strategically placed may actually do the job...