Consumer Credit: A Double-Edged Sword

This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.

The Federal Reserve reported that consumer credit increased by nearly $1 billion in April to $2.44 trillion. In the same report, there was a substantial revision to March's results -- from a rise of $2 billion to a drop of $5.4 billion. The stock market tanked on the news because the data suggest that Americans aren't yet secure enough to borrow and ultimately to spend freely.

Huh? I know you thought that a drop in debt is a good thing, which it is for you and your family. The problem is that it's not so good for the economy. I discussed the double-edged sword of consumer credit with CBS3 this morning.

So where do Americans stand when it comes to debt? The Fed will release its Flow of Funds report on Thursday, which will provide an accounting of all household debt, including both consumer credit and mortgage loans. It's expected that total household debt held steady at about 20% of total assets in Q1. Here's how that compares to the past:

• In the mid-1990s that ratio was around 15%
• Peak was Q1 2009 of about 22.5%

It's hard to reduce the level in a meaningful way - to put a dent in the numbers even by 2% would require households to shed an additional $1.4 trillion of debt.

Jill Schlesinger is the Editor-at-Large for CBS MoneyWatch.com. Prior to the launch of MoneyWatch, she was the Chief Investment Officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.