Bloomberg News reports that consumer borrowing -- as measured by credit card receivables -- grew much faster than expected in March. Specifically, the 9% growth to $2.56 trillion was twice the rate of increase that economists had expected (the actual increase was $15.3 billion vs. 34 economists who expected $6 billion). The March figures brought U.S. consumer borrowing in the first quarter to $34 billion, the most since the first three months of 2001, when the economy entered its last official recession.

And as consumers are increasing their indebtedness, they are also having more trouble paying it back. Overdue payments at the six largest U.S. credit-card lenders reached the highest level since November 2004, according to data compiled by Bloomberg. It found an average of 4.11% of loans were at least 30 days late in February and March.

Bloomberg quotes Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York who says it all: "incomes are not keeping up with inflation and this is leading them to rely increasingly on credit to see them through the worst housing downturn since the Great Depression. The days of extracting cash from one's home to spend on goods and services are long gone."

With consumer spending accounting for 70% of GDP growth, that's why I suggested selling into the sucker's rally that peaked last week.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

American consumers, the pivotal factor in the consumer-dependent U.S. economy, may have modified their spending philosophy, The New York Times reported Tuesday.

Stung by the housing market correction, stagnant wage growth in certain job segments, above-average debt levels, and a slowing economy, Americans are saving more and using credit less -- a shift that some analysts argue is a cultural inflection point of sorts, with huge implications for the economy.

Economist Steve Affinito told BloggingStocks Tuesday that while The Times' interpretative report did not "cite a large enough sample size to meet my fancy," it nonetheless provided data points that support what macroeconomic indicators are saying about consumer choices.

"We know that the savings rate has increased in the last six months, and retail sales are sluggish, at best. Take these and combine them with much tighter credit terms for home equity loans and other credit and what you get is a pull back in purchases, particularly purchases on credit," Affinito said.

The Boston Globe reports that credit card companies have been targeting subprime mortgage holders.

The evidence is stunning. Direct mail credit card offers to subprime customers in the US jumped 41% during 2007's first half, compared with the first half in 2006. By contrast, direct mail offers targeted at customers with the best credit fell 13%. During this same period, defaults on subprime mortgages rose significantly -- in June, nearly 20% of subprime mortgages were at least 60 days past due, and more than 1 in 20 were in foreclosure.

The leaders in selling higher interest rate credit cards to the financially vulnerable includes some subprime mortgage leaders. Here's a partial list:

Yesterday I was raked over the hot coals by several readers that feel we are doomed by a housing bubble that I would not accept. See: Housing Truth from Main Street; which turned out to be quite a controversial post.

I stand by most of what I wrote. However, there were plenty of valuable insights that are worth reflection among the ranting and raving. A particular comment by David Gross, although not very deep is important for its simple summary of many comments. It stimulated a response from me that I thought was worthy of a separate post and further discussion.

David's Comment