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Drought of Credit Hampers Recovery

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DEMAND IS THE ISSUE
The Wall Street Journal this morning takes up the "credit drought" - their phrase - on the consumer side. "Total consumer credit outstanding, which includes everything from credit-card debt to loans for recreational vehicles, fell $12 billion in August, or at a 5.8% seasonally adjusted annual rate, the Federal Reserve reported Wednesday. It was the seventh straight month of declines, the longest stretch since 1991."

Here's the interesting part: "The drop is a stark demonstration of how banks and other lenders are scaling back, owing to their own exposure to the struggling real-estate market. But it also reflects a reluctance by Americans to hold big loads of debt at a time when the job market remains in bad shape and the value of their homes has fallen." 

The first part is what everyone is focused on; banks are not lending. The second is one fewer are paying attention to, and that's the one that will ultimately turn back the "recovery."

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