Data provided by the Federal Reserve reveals that consumer credit card
debt in the U.S reached $800.5 billion, thanks to an increase in
credit card borrowing in December 2010. According to the Federal
Reserve report, consumer debt has increased for the first time since
2008. Credit conditions in America have somewhat improved and people
have started spending again. However, this does not mean that things
are looking too rosy. President Obama correctly points out that the
U.S economy cannot hope to prosper on thebasis of consumer spending
which is fuelled by debt.

What are the implications of the increase in consumer debt?

The consumers may be gaining confidence in the U.S economy. The
recession pushed millions of people into debt and lead to the collapse
of financial giants like Lehman Brothers. This caused people to lose
confidence in the economy. Consequently, they were cautious with their
spending over the next few years. However, some experts like John E.
Silvia, chief economist at Wells Fargo, believes that the trend is
about to change. The consumers, as the Federal Reserve report shows,
are returning to normal monetary activity. This is obviously good news
because more consumer spending would pump money into the economy and
lead to growth.

Another positive fact is that credit card debt has climbed up but
there have been fewer write-offs. This means that the outstanding
balance is increasing but fewer people are unable to pay back their
debt fully. It is possible that the financial condition of people is
improving.

A lot of people failed to be eligible for credit lines during
recession. This restricted the capacity of people to spend. Increase
in credit card debt indicates that the credit score of more and more
people are improving. Thus they are being able to apply for credit
lines with higher upper limits.

High consumer spending can be temporary too. It is possible that the
rise in consumer debt in the month of December can be due to the
holiday season. Now that the situation is somewhat stable, people can
afford to spend money during Christmas time. Nonetheless, they might
get back to their frugal living habit. They might have grown wise with
their money as the financial tsunami swept their bank accounts. Even
if the consumer spending goes up, it is highly unlikely that it will
reach the level of the pre-economic meltdown days.

The above fact is based on some alarming facts. The unemployment rate
in the U.S is still as high as 9%. Underemployment is still
widespread, debt
settlement and bankruptcy rates are still not under control.
People are lacking the money for consistent spending throughout the
year.

The unemployment rate can come down substantially if the consumer
spending remains steadily increases. That would encourage the
corporate houses to expand their business which in turn would boost
the employment opportunities. However, no one is confident that people
would continue spending at the current rate in the coming days.

Increase in credit card debt can actually be a ray of light at the end
of the tunnel. It may be a sign that the economy is getting back to
its feet. However, increase in consumer spending is certainly not the
only way to revamp the U.S economy. The U.S should understand that if
consumer debt spirals out of control then it will face yet another
financial crisis. So the government as well as the private sector
needs to pull a few other levers to boost the economy. A uniform
increase in the salary level is one such possible step.