US sharpens scissors to snip at consumer credit

If you've been considering a small bank loan to repanel the kitchen, you may just change your plans, keeping a wary eye on Uncle Sam. The Carter Administration, in a move certain to set off broad public debate, is seriously considering selective curbs on consumer credit as a way of checking the spiraling US inflation rate.

The overall impact of slapping curbs on credit, particularly revolving credit (such as bank credit cards or smaller bank loans), would be felt by millions of Americans.

Those most immediately affected would include younger families needing "expansion" dollars for new homes, remodeling, and tuition; families living from "paycheck to paycheck," who use credit to help offset inflation; and retailers and lending institutions in general.

As of this writing, the Carter administration has not yet announced such curbs. But it is known that they are being seriously discussed as part of a new and larger anti-inflation package.

Whether the administration would opt for tough controls on consumer credit -- which would have obvious political drawbacks during an election year -- is uncertain.

Many consumers might applaud the move as demonstrating "new toughness." Many, however, could be expected to be deeply angered. And some might well vent that anger in the polling booths as the presidential primary season continues and in November's general election.

The administration, for its part, has a wide variety of legal tools to impose credit curbs, even without congressional action.

The administration contends that such curbs are needed because many Americans have become overextended in their personal consumer debt, thus helping to fuel inflation.

By themselves, the dollar figures appear to back up this contention:

In the period from February 1975 to late 1979, for example, consumer credit (including installment and noninstallment debt but not including mortgage debt) shot to $370 billion, from $185 billion.

Total personal debt in the 1970s (including home mortgages) rose from $430 million in 1970 to 1.2 trillion in the third quarter of 1979.

"There has been an enormous increase" in both consumer and mortgage credit clearing, justifying some form of selective credit controls, Dr. Joseph A. Pechman, an economist with the Brookings Institution, contends.

He notes, however, that if selective controls are imposed, they should also be balanced to include business debt.

Many economists disagree that such controls are necessary. "Consumers are managing their credit fairly well," says Dr. Richard Curtin, a consumer specialist with the University of Michigan Survey Research Center.

In the fourth quarter of '79, spending on housing, cars, and many durable goods was unchanged or slightly down from 1978 levels. But he says that much more was spent on services and fuel (and other categories) clearly affected by inflation.

He argues that imposing consumer credit terms "forces consumers to bear the hardships of inflation."

On one hand, he says, the government restricts the interest that a citizen can earn on savings. On the other hand, imposing credit terms would prevent the public from engaging in "advance purchases," where consumers knew they could make savings by buying before they rose in price.

Economic Week, a financial analysis prepared by Citibank, notes that the big jump in consumer spending during 1979 in such durable and nondurable areas as furniture, appliances, and clothing coincided with major discounting by retailers seeking to sell off stocks.

In this sense, the analysis suggests, consumer spending for these goods must be seen as highly reasonable.

Curbs, if they were to be imposed, could come in a number of ways. Perhaps the most direct route would be requiring lending agencies to hold available credit to last year's levels. Also, the Federal Reserve Board could again raise reserve requirements for member banks, which could further limit the amount of money available for borrowing. Many banks have already begun to raise interest rates on revolving credit accounts, though most Americans will probably continue to borrow and pay the higher charges.

While the specific details of any new administration antiinflation package are not yet known, officials have told lawmakers that they will be proposing cuts of $615.8 billion in the fiscal year 1981 budget, which begins Oct. 1.