The Federal Reserve earmarked $200 billion to get the consumer credit industry rolling again via TALF. Credit cards, auto financing, and other consumer credit products have been scarce. Yet is this consumer credit program little more than the generation of the next credit debt disaster?
Yahoo News publishes AP economics writer Jeannine Aversa’s take on the Term Asset-Backed Securities Loan Facility (TALF) that is part and parcel of the Financial Stability Plan. The $200 billion are three year government loans for interested companies in the consumer credit business. Potential TALF participants have until March 17th to apply for their piece of the loan pie.
The Department of the Treasury is optimistic and suggests in its 03-03-09 press release that the Term Asset-Backed Securities Loan Facility could lead up to $1 trillion in consumer credit lending for customers as well as businesses. Funding for this consumer credit wellspring is scheduled for March 25th. The Federal Reserve maintains the privilege to extend this program past December, 2009.
This Federal Reserve underwritten consumer credit program through TALF will make credit easier to come by. At the same time, it will increase consumer debt – which is mostly comprised of credit card debt – and potentially set up the American economy on the road for another fiscal disaster.
A quick perusal of the 12-2008 Federal Reserve statistics shows that consumer credit necessitating debt service payments has steadily increased since the 1980s. While in the first quarter of 1980 the total percentage stood at 11.13%, at the end of the first quarter in 1990, this figure had increased to 11.99%. Credit debt spending went up again and at the end of the first quarter of 2000 it reached 12.26%. At the end of the third quarter in 2008, this percentage reached 14.01%. These figures do not include mortgage loans, but only credit debt related to other loan products.
There is little doubt that TALF has accurately zeroed in on the fact that consumer credit is actually what makes the economy work. Money Zine suggests that 70% of the United States’ gross domestic product is intimately intertwined with consumer spending; no spending, no healthy GDP.
On the other hand, overdoing credit debt directly leads to bankruptcies when the delicate fiscal balance is upset – such as it was when the housing bubble burst – and unsecured credit debt, namely credit cards, led to financial chaos. As a consumer, you have to make a choice: will you take advantage of the Federal Reserve and its TALF program, or will you seek to curtail your borrowing and reduce your credit debt?
http://news.yahoo.com/s/ap/20090303/ap_on_bi_ge/fed_consumer_credit;_ylt=Ap2R9Di963AEglJyB2Hz2l7Zn414; http://www.ustreas.gov/press/releases/tg45.htm; http://www.federalreserve.gov/releases/housedebt/default.htm; http://www.money-zine.com/Financial-Planning/Debt-Consolidation/Risks-of-Rising-Consumer-Debt/