Silver Lining?

Surely in the midst of our economic troubles it's good news that people are starting to rein in their debt?

WASHINGTON – U.S. households, hit by declining home values and stock market losses, have cut back on their debt levels for the first time on record as loans remain scarce amid what appears to be a deepening recession.

The Federal Reserve on Thursday released it latest quarterly look at consumer and business finances showing that households reduced their debt levels by 0.8 percent at an annual rate in the July-September period, the first drop on records that go back more than 50 years.

The decline in household debt levels is evidence of the severe credit squeeze that is occurring as banks, saddled by billions of dollars of losses in mortgage debt, have tightened lending standards and made it harder for people to get loans.

Mortgage debt fell at an annual rate of 2.4 percent in the third quarter, the largest decline on record. Mortgage debt had fallen at an annual rate of 0.1 percent in the second quarter. Those two quarterly declines are the first such drops in the Fed survey that dates back to 1952.

In past periods of tight credit, mortgage and total household debt have never declined, although the debt growth usually slowed.

Goes to show that fear can be a powerful motivator, I suppose.

But I wouldn't be surprised if, once the current situation straightens itself out - or at least is perceived to be straightening itself out, people didn't go right back to spending like sailors on shore leave.