This post is an update to the same. It is a proof (if ever one was required) about how severely the US consumers have been affected. According to figures provided by FICO Inc., 25.5% of the consumers (roughly 43 million people) now have a credit score of 599 or below. This means that more than a quarter of Americans have high credit risk associated with themselves. It is, therefore, quite unlikely that they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use. So, where is the consumer demand going to come from?
Recently the Fed came up with a piece of news that was music to the ears of many people who are betting on fast US recovery. According to Fed, Americans slashed their revolving consumer credit—mainly card balances—by about US$7.4 bn in May. That's an annualized rate of 10.5%. What is also very important was that, since the end of 2008, the US consumers have cut those balances by about $127 billion, or 13%. Dig deeper and one finds the real story behind this. According to the Federal Deposit Insurance Corporation, about US$18.7 bn of outstanding credit card balance has been written off. WOW.
In the same vein, giving data of mortgage delinquencies, the Mortgage Bankers Association stated that 4.6% are already in the foreclosure process. And another 10% are more than one month in arrears. In total we are talking about 14.6%, which means that nearly one in seven home loan is in trouble. In other words, for every credit card that's still delinquent, there are about four times as many home loans in trouble. Recovery anyone?