You know, consumer debt is probably the biggest thing slowing down the economy, even though financial institutions are wanting to saddle the average consumer with more debt. If people don't have money to buy things because they are spending money servicing debt, that slows down the whole consumer economy. The only people who win in that scenario are the banks, but they would profit more over the long term by a stronger economy than they currently do from consumer debt.
It seems like the economy is largely debt driven. The amount of personal debt that people can accumulate before declaring bankruptcy is finite, and when their credit drops, the economy contracts.
There is too much debt in the system. Decades of goosing growth everywhere by making debt easier has put lots of places into tenuous territory where market adjustments combined with sentiment can tank things in unexpected ways.
The important thing really is the financial fragility of the American household. Millions of people know that they are one unexpected event away from insolvency. GDP doesn't mean anything to them. Consumer debt just puts them more at risk.
The people who spent on credit were the bright ones. There is no way that we are going to get out of this without substantial debt moratoriums. Debt servicing is just too big a fraction of the economy.
The debt moratoriums will be either explicit or implicit (massive inflation).
Creditors will lose out and debtors will win big. Assets are probably overvalued, so there will be some deflation there.
There are simply too many people deeply in debt, and for the majority of them there's no possibility to balance their financial situation -- and their number is increasing continuously...
Good analysis. Relying on credit to enable consumer spending happened in the mid 1920s as stagnant wages, and income inequality reduced the discretionary budget of most consumers. At best spending on credit is a temporary boost to the economy as consumers will eventually be tapped out and spending will stop.
I agree with you, consumer debt isn't the solution, more affluent consumers is the solution. Raise wages, sell better products. Its like Henry Ford said when he gave a very large and controversial raise, your employees should be able to afford your products, if they can't, you might not have a market. As leaders of companies, we should return to the value system of generosity because that will actually support more market activity.
That might just be the saddest post I'm going to read all day because you're probably right. Individuals have access to lots of credit, it fuels our American consumerism.
Maybe it's better, in the long term, to suffer that shrinkage? I'm absolutely not an economist, so I don't really know. Maybe we are in a credit bubble and it needs to pop?
Could we absorb the negative drop in the economy without there being riots in the street? Would it be better in the long run?
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