If you have borrowed a lot of money recently, you have plenty of company. More and more Americans seem to be deciding that the best way to beat inflation is to borrow against it.
The logic is as simple as it is old. Buy now -, prices will go higher later. Borrow today, and repay tomorrow in cheaper dollars. To a significant extent, the economy's growth has depended on sharp jump in consumer debt.
That increasing numbers of Americans find debt - mortgages, credit cards and auto loans - attractive gives them a vested interest in inflation that few will acknowledge.
It also may signal a fundamental shift in attitudes towards infltion. In early 1970s, many economists believed that higher inflation prompted Americans to save anxiety about the future and, to protect themselves, people put more away. Now, they seem to be deciding that the protection is illusory: a sucker's game.
If true, this bodes ill. It means that we have lost of further check against inflation accelerates, people tend to restrain price increases. They don't put more pressure on prices by going on a buying spree. And their extra savings tend to lower interest rates.
A withering of this self-restraint leaves even more of the anti-inflation job to government. Indeed, last week's moves by the Federal Reserve - raising interest rates and bank reserve requirements - gives fresh evidence of that. And there is probably more to come. In today's inflationary climate, interest rate increases may be steep, because borrowing has become more attractive, saving less so.
Finally, larger debt burdens create new uncertainties about the futute. If a slowdown or recession occurs next year, debt makes families more vulnerable. Even if two family members work, the loss of one job may jeopardize repayments. And any rise in defaults or deliquencies could also prompt a tightening of credit standards. Because much new purchasing is now based on credit, that could prolong the effects of a slowdown.
To raise these questions is not to say that Americans have suddenly become widly profigate, borrowing and spending as if tomorrow didn't exist. That clearly ahs not happened, and, unless out of touch, the economy is not about to collapse under the weight of bad debts. Indeed, despite the increase in consumer borrowing, neither defaults nor deliquencies have yet increased.
But there has been a gradual and indisputable drift toward more debt. Credit terms have become easier and lenders more aggressive in pursuing borrowers. Before the 1974-75 recession, the typical automobile loan had a maturity no longer than 36 months. Now, banks and auto companies write loans up to four years, lowering monthly payments in the process.
Banks and credit card companies actively struggle for new customers, resulting in huge expansion of cards in circulation. Since 1974, the number of bank, credit cards has risen from 64 million to 106 million. Mortage borrowing, too, has become easier. Over the past decade, down payment requirements have eased markedly. Just last year, Congress reduced the minimum down payment on government-insured mortgages to 3 percent on the first $25,000 and 5 percent on the rest, up to $60,000.
The statistics coonfirm the emerging patterns. As the economic expansion has proceeded, people are saving less of their incomes. The savings rate - the percentage of after-tax income that is saved - has declined from 7.7 percent in 1975 to 5.1 per cent in the third quarter of 1978. That rate is considered below the average in the 1960s and early 1970s, when it fluctuated between 6 percent and 7.5 percent.
Debt also has risen faster than income. The mythical " average " family now pays 20.6 percent of its after-tax income in debt repayment, an all-time high (up from 18.6 percent at the end of 1975). Consumers haven't balked at paying 9.5 percent of 10 percent for mortagages, and, as following table indicates, almost all forms of consumer debt have risen rapidly in the past three years (in billions of dollars).[TABLE OMITTED]
Pressed, most economists do not want to read too much significance into recent consumer behavior. Typical is Fabian Linden, a consumer economist with the Conference Board, a New York economic research organization.
" We've never been subjected to the kind of inflation that puts people into a panic that impels them to go into a storage to convert their bucks into something. " he said. He concedes that some anticipatory buying - mainly in autos - may have occurred, but warns against overstating the trend.
Nevertheless, taken together, heavy consumer borrowing and less saving do suggest a change. Consumers generally have saved more than they have borrowed, but this surplus now appears to be narrowing.
Aside from inflation, the change may stem from a number of causes: tax changes between 1975 and 1977 that penalized upper-middie-class and wealthy families more heavily (these groups save most); and technical and institutional changes make it easier for customer-oriented institutions to attract funds. Savings associations, for example, now offer " money market " Certificates at interest rates competitive with government securities. Previously, during periods of high interest rates, people withdrew their savings to invest elsewhere.
But if consumers save less and borrow more, the net result is to raise the demand for credit and reduce the supply. That means either that interest rates will have to go up (to convince consumers, among others to save more) or that there will be less investment (new investment requires savings). What this indicates is that the economy has embarked on an unsustainable path of too much consumption, not enough investment. But no one knows how to get to the right path.