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That drop in consumer debt? It’s from defaults, not debt being paid down

Can’t we all just hold hands, sing Kumbayaa, and buy an SUV? – Robt McTeer, Dallas Fed Chair

http://money.cnn.com/2010/09/28/pf/consumer_debt_default.fortune/index.htm

Excerpts:

Total household debt fell by $77 billion during the three months ending in June, but nearly half of that decline stemmed from bank charge-offs of residential mortgages, credit cards and other consumer loans, according to Capital Economics Group. In a recent report, the London-based economic research consultancy found that this isn’t necessarily a new development. Household debt has fallen every quarter since the beginning of 2008, leaving it $473 billion below the peak, which is the equivalent of reducing debt at every household by $4,200.

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But consumers haven’t exactly discovered a newfound sense of frugality. In 2009, outstanding credit card debt dropped by about $93.2 billion compared with the previous year, according to a report from CardHub.com, a credit card comparison website. This might sound like good news, but the reality is that the majority of the drop — $81.6 billion — is due to Americans defaulting on their debt.

So the real decrease is much smaller – about $11.6 billion – and much of that came during the first quarter when many people used tax returns to pay down card debt. At this rate, CardHub.com predicts consumers in 2010 will actually accumulate at least $26.2 billion more in credit card debt over last year.

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BTW, can’t get enough McTeer? Here’s a great Kudlow interview with McTeer, explaining how unfair mark-to-market is to America’s fine banks.

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