Consumer Credit Economy

April 11, 1975

Report Outline
Strans on U.S Consumer Credit
Development of Lending Practices
Directions in Consumer Borrowing
Special Focus

Strans on U.S Consumer Credit

Impact of Economic Recession on Consumer Deby

The american way of life is built on debt. Hundreds of billions of dollars' worth of credit have enabled Americans to enjoy cars and refrigerators, furniture and fashionable wardrobes, hospital care and vacations, and a host of smaller purchases. Consumer credit stood at $21.5 billion in 1950. As of Feb. 28, 1975, the figure was $185 billion, and nearly 80 per cent of all American consumers were using credit in some form, ranging from department store charge accounts to home-improvement loans. By stimulating demand, this growth in consumer credit has spurred the production of goods and services on a mass scale. No other country in the world has such a big, rich economy, and no other economy has such a reliance on personal debt—some $900 worth for every man, woman and child in the United States.

But now the nation's troubles are shaking the foundations of its credit economy. Rising prices have inflated the people's borrowing needs but have slashed the share of income available to them to pay their debts. At the same time recession has taken its toll in jobs and salary expectations, reducing even further the people's ability to repay what they owe. Yielding to this pressure, Americans have reduced their net borrowing by record amounts. A record contraction of $877 million occurred in December 1974, and January 1975 was the third consecutive month in which outstanding consumer debt decreased. Never before had consumer debt fallen for three months in a row. In February, the latest figures showed, installment lending increased by $237 million—spurred by the auto industry's cash-rebate sales campaign—but non-installment credit fell for the fifth consecutive month.

But while consumers have been trying harder than ever to get out of debt, a growing number of them are going under. Personal bankruptcies during the second half of 1974 were 103,216, almost one-third more than in the second half of 1973, and the Bankruptcy Division of the U.S. Courts expects a record number of filings in 1975: by one estimate, 225,000.

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