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Beige Book Finally Opened, Crisis May Extend

By Faye Mergel
Published: Friday, September 25th, 2009

The much anticipated Federal Beige Book was finally published last Tuesday. Economists already made their predictions a week before, but it was still a shocking Tuesday for them. Some were concerned that this present consumer behavior will only lengthen this recession.
The Beige Book is a report which the Federal Reserve Board publishes eight times a year. It contains information on the condition of the national economy from data provided by twelve Fed Reserve Districts, which run from Boston all the way to San Francisco. Part of this Beige Book is made up of consumer credit reports which are important to economists and lenders, as well as individual consumers.

Beige Book Finally Opened, Crisis May ExtendThis economic crunch made many economists expect that majority of Americans will fall deeper into debt. Instead, they broke expectations and followed the global trend: deleveraging. Banks, businesses, and other organizations are getting rid of their debts, and so are Americans.
According to the Fed Reserve Board, consumers have been shredding debt for six consecutive months since July. This cutting of credit limits by banks and other lenders could be one of the main reasons for this behavior. Experts also speculate that Americans are trying to provide themselves cushion against cuts by keeping their balances low.

Total borrowing, which accounts for most consumer loans, with the exception of real estate, has declined by 10 percent.  The Fed Board also says that banks have been tightening its standard for card applications and debt lines have been lowered. As a result, revolving credit dropped by 8 percent.

On the other hand, non-revolving credit, declined by 11.7 percent. Consumers are more reluctant when applying for auto, vacation, and education loans. This decrease in auto loans can be attributed to the “cash for clunker program,” in which the Federal Government provides rebate to consumers who trade in their old cars for newer ones. Meanwhile, economists attribute this decline in loans as vacation in schooling can be to the higher loaning standards by creditors, whether by personal will or due to banking restrictions, a decline of activities in the credit sector is not a good sign for the economy. Fewer debts released means a more sluggish spending by Americans and a slower recovery for the US economy.

Consumer spending makes up 70 percent of the gross domestic product, a much needed push to get this country back on its feet. It is one of the strongest driving forces of the economy which is a main reason why the government is establishing programs to stimulate spending. However, with the unpredictability of the economy, consumers remain cautious and no one can really blame them.

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