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The Borrowers

A few recent indicators suggest the country, at least economically-speaking, is continuing to slowly heal: a decline in jobless claims, a bottoming of the housing market, maybe, and an uptick in consumer confidence. Last week, the Federal Reserve released data that reflected an increase in consumer credit of $19.3 billion to $2.5 trillion.

This has been framed as a positive development. Consumers, Ken Mayland told Bloomberg News, are willing to take on debt because "there is some increasing degree of confidence in the economy." The Associated Press also took the new numbers as a sign of a strengthening economy, but warned that "consumers were also borrowing more when their wages have not kept pace with inflation."

That gets at the biggest question: Who, exactly, is borrowing all this money? (The Federal Reserve won't have this data available until its 2010 Survey of Consumer Finances is published later this year.) Are people borrowing because they have to -- say, to make a mortgage payment -- or because they want to? Absent a statistical breakdown of the consumer income, we can only guess. For instance, the AP reports that:

Americans borrowed more on credit cards in December, probably to buy holiday gifts. A measure of that debt increased by $2.8 billion.

But the bulk of December’s increase was because consumers took out more auto loans and student loans. The category that includes both rose by $16.6 billion.

(The rise in student loans, an economist told The Wall Street Journal, does not indicate a burgeoning crop of doctors and MBAs, but is instead "a sign of financial strain.")

We can also get a sense of the geographic dispersion of the borrowing. The Federal Reserve of New York reports that it's not happening in areas most affected by the economic collapse: in Nevada, for example, residences are primarily concerned with "paying down mortgages" or "are unemployed, and won't be free to borrow again for several more years." This is perhaps optimistic, as Nevada's unemployment rate is still four-percent above the national average and more than half of all mortgages are underwater.

In lieu of further data from the Fed, it's difficult to definitively view the rise in consumer borrowing as positive or negative -- and to gauge the proportions by which the increased debt is a reflection of economic health or desperation. However, a recent Demos study [pdf] suggests that, at least for low and middle-income families, it's probably the latter.

The study found that, at least where credit cards are concerned, additional debt is rarely a sign of health:

Families with credit card debt are more likely to have experienced economic shocks such as unemployment, a loss of health insurance or an unexpected medical expense. The value of liquid and nonliquid assets held by credit card indebted families was also lower. In addition, indebted families are more likely than non-indebted families to have other monthly financial obligation in addition to credit cards.

A startling 63 percent of families with revolving balances or credit card debt (for three months or more) have been contacted by bill collectors -- who oftentimes target the very people who can least afford to have their minimal wages "garnished."

Even if we're on the cusp of an economic upswing (which is the opinion of the Organization for Economic Cooperation and Development) it doesn't make sense to start celebrating until we have a better idea of how the debt burden is allocated.