Borrowing Spree

I recently came across an article by Kathleen Madigan on the Wall Street Journal website (online.wsj.com) titled Good and Bad in Credit Card Binge. Madigan’s article is about the recent phenomenon of March Madness in the financial world, where this past March consumers went on a ‘borrowing spree’ adding $21.4 billion in borrowing for the month (Madigan 2012). This borrowing spree was this largest since November of 2001 and Madigan’s article explores possible causes for such an enormous change. Madigan use the half-full, half-empty analogy to describe consumer’s stance on the economy and their own personal finances. The ‘good-side’ of the credit card debt increase is that it shows the strengthening of the economy. People are more comfortable now using credit to make purchases because they feel confident that they will have enough money to cover the tab. These people have recovered from the recession of the previous years and they look at the glass half-full. On the other hand, the half-empty view on consumer debt escalation in March 2012 is bad. These consumers are borrowing just to stay above water. Madigan notes that average hourly pay increased only 0.5% in the first four months of 2012, while gas prices have jumped 8.8% and overall goods have inflated almost 1% (Madigan 2012). I imagine that most people are using their credit cards just to maintain their lifestyle. This increase in borrowing is not a sign of increasing stability in the economy because unemployment is still at an all-time high. Until foreclosures and unemployment are problems of the past I don’t think it will be possible to pin-point the motives and incentives of consumers borrowing trends.

Please check out the Kathleen Madigan’s Wall Street Journal article at:
http://blogs.wsj.com/economics/2012/05/09/good-and-bad-in-credit-card-binge/?KEYWORDS=debt