As we rolled into a new year last week, for most of us the Christmas cheer we bought in December will soon become the January blues as credit card bills fill our mailboxes. Add to that a national crisis in keeping people in their homes, avoiding foreclosure because of bad subprime mortgage loans, higher unemployment rates, and a colder winter that drives up both heating fuel and vehicle gasoline prices, and many believe we're headed into a recession.
Americans are deeper in credit card debt than they were a year ago. And accounts are going delinquent at a higher rate, with serious 90-day or more delinquencies on the rise.
More and more Americans are falling behind in consumer loan repayments, home equity and auto loans, with the delinquency rate for the latter climbing in the third quarter of 2007. The value of credit card accounts at least 30 days in arrears rose 26 percent to $17.3 billion in the fall from the year earlier. All told the Fed figures Americans have $920 billion in credit card debt.
The rising level of personal debt is affecting family incomes, and eventually will reshape the quality of life we've come to expect. And while the subprime mortgage crisis is felt at the front line with people forced out of their homes, it is also hitting commercial lenders as hard.
The Federal Reserve on Friday announced it would increase the amount of money available to banks through a process it created to ease a nationwide credit squeeze. From $20 billion to $30 billion will be offered by the Fed in two auctions later this month. It's seen as providing a source of loans to cash-strapped banks that don't want to use the traditional method of taking direct loans from the Fed because of the stigma attached to it.
ADVERTISEMENT
The 4.67 percent interest rate banks got for the second $20 billion in funds and the 4.65 percent rate for the first auction means that banks are getting funds at a rate slightly below the 4.75 percent they could get by direct borrowing through the Fed's discount window.
There are a number of plans percolating to help ease the credit crunch caused by the subprime mortgage crisis, including a Bush administration plan to freeze interest rates, hopefully stalling subprime borrowers from falling further behind in mortgage payments.
When Congress reconvenes later this month, it should tackle the nation's economy, putting a solution on a fast track. A good start is an education program detailing what happens when a consumer is allowed to run amok with a credit card. The nation needs to be educated on wise spending, and how to do a balanced family budget.
But the subprime mortgage crisis needs more - probably nothing short of stronger federal regulation of the industry to prevent a 1929-like event when the bottom dropped out of the economy.
Congress is at work on more aggressive methods to cushion the subprime crisis, including attention from both of Minnesota's senators.
The issue of rising debt - and home foreclosure - must find a bipartisan solution soon, or we will slide into recession again.
THE BEMIDJI PIONEER
