Slackline of Credit

According to anecdotal evidence, slacklining is gaining popularity.  I have seen participants engaged in the balancing act more frequently lately.  Slacklining is an activity requiring stability and various levels of tension.  Essentially, a line is suspended between two trees with a modest amount of “slack” creating a dynamic line which will stretch and bounce while being walked on.  Lower lines are more attractive to beginners, as the barrier to entry (concern about falling) is lessened.

There are parallels between slacklining and a favorite American pastime, borrowing money.  Consumers must balance their incomes with liability payments.  Additionally, there is a tension between these borrowers and the lenders who are charged with creating their own equilibrium, linking risks to rewards among other things. 

Revolving-credit has been growing this year.  More specifically, the monthly rate of change accelerated in each of the past 2 months.  This suggests to Atlas there is some slackening of lending standards; it also points to a consumer base feeling more confident in its ability to earn in the future the money they are spending today, or that there is a developing need for quick cash.  This segment of borrowing crossed the $1 trillion mark in September 2017 according to the Federal Reserve, a level not reached since the middle of the financial crisis when this type of activity was contracting.

While the Federal Reserve’s revolving-credit data collection method is more sophisticated than my slacklining observations, the conclusion regarding each activity is the same: more.  Of course, borrowing money using revolving lines of credit is no hobby, and the consequences could be greater than falling a few feet if the balance evaporates.  Banks seem to be lowering the barrier to entry, thus making the activity of borrowing easier.  However, this actually increases risks to the economy, even if only marginally.  Only time will tell if the tension between credit supply and demand is appropriate; let’s just hope we don’t have too far to fall if a negative cross current changes the economic equilibrium.