Paybacks are Hell

After 15 years of feasting on credit, consumer borrowing decreased in July by its fastest pace in over 50 years.  More of us are paying down debt and fewer people are taking out new lines of credit.

Consumer credit 0909

Quite striking in comparison to the tail end of the previous recession.

This is bad – so much of the U.S. economy is tied to consumer spending, the disappearance of a “borrow and spend” mentality (among consumers; we’ll have to deal with Uncle Sam separately) continues to impede our recovery from recession.

On the other hand, this is good – reducing debt and increasing savings are rational and sustainable behaviors.  Living beyond our means is neither.  Aristotle would be proud.

On the other hand, this is bad – for small business owners looking to sell their companies, fewer individual buyers willing to leverage themselves to the hilt will keep valuation multiples low.  Expect the same dynamics to apply to corporate and institutional buyers.

On the other hand, this is good – at the debt reduction and savings rates we have seen so far this year, it won’t take long for some large cash war chests to amass.  Fewer business acquisitions will be heavily dependent on financing, and more deals will be easier to close.

— David Bass



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