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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Middle Class Finally Shaping Up Balance Sheets

Associated Press

Borrowing by consumers rose again in May, but a slowdown in the rate of increase has given hope to those who fear middle-class Americans are too deeply in debt.

The latter is a very large category. It includes, of course, those borrowers who know they are over their heads in debt, and it includes lenders who are bemoaning their own laxness.

Last month, the latter were forced to write off $842 million in uncollectable credit-card loans. Still, they tried to look at the bright side of things; the total was $846 million in April.

It is in such minor improvements that hope resides, since any improvement at all, it is reasoned, suggests that a new trend may be forming. A trend toward reason over desire.

It’s been a long time coming.

Research by analysts at Sandford C. Bernstein, a securities firm, point out that household debt grew in the 1990s at a rate 2 percent a year faster than income.

In this time, credit-card balances tripled, low down-payment mortgages grew, and, for a time, subprime lenders flourished. Add to that summary a deterioration in the ability to repay.

It is quite clear from the data, according to the Bernstein research, “that as a group households are now much more levered than at any point in the last 50 years.”

The financial ascent of the middle class is, you might say, very much indebted to credit.

Rising equities pump up confidence. Confidence fuels spending. Spending involves risks. Risk-taking involves credit. As the ascent heightens, reality shrinks below.

This, at least, is one picture of the economy, and it can be supported by data. But data are tricky, and numbers can be made to dance - to perform to ends pre-ordained for them.

But no matter what, the simultaneous rise in assets and debt is watched closely by those who see how one affects the other - good and bad.

Households often display an uncanny sense of where economic reality lies; it has been demonstrated, in fact, that at times their instincts are more refined than those of bankers and brokers.

They do appear to be slowing their demand for credit, which would suggest that they may be about to realign and improve their balance sheets.

They have some way to go.