Debt in the post-recession world
As the recession winds down and the economy sluggishly recovers, we look to how Americans are reacting in the aftermath. Did we all learn a lesson about debt and start shoving money into the mattresses, or did we sense a recovery and start signing up for more credit cards? Well, this is America, so of course we got those credit cards.
We’re taking on more consumer debt than ever, even adjusting for inflation, according to the Federal Reserve, which reports that pinching pennies isn’t the reaction of being hit hard by the recession, burying ourselves in debt it.
Consumer debt includes credit card debt, car purchases, student loans, but not mortgage debt. It seems that the recession slowed down credit spending, but having put off things like buying new appliances and cars has come to an end, and we’re signing on the dotted line for those things we denied ourselves for several years.
Consumption per capita has been on the rise since the recession, even though income levels remain stagnant and underemployment rampant. This consumption may stimulate demand at present, but consumption financed by debt is not a sign of future economic health or strong growth.
Credit cards are now 56 years old
On Bloomberg, economist Barry Ritholtz points out that today marks the 56th anniversary of the charge card, which significantly changed the global economy in a way that few things have since.
Ritholtz opines, “Credit is a tool, one that can be used wisely or foolishly. No one held a gun to our collective heads and forced us to borrow and spend; the decision to live beyond our means was a choice too many of us made, both as individuals and collectively.”0
“That doesn’t mean we have to like it,” he adds. “Nor should we remain ignorant about the impact of credit’s use and abuse. This is why we now find ourselves in a slow and unsatisfactory recovery. The deleveraging process continues, and each passing quarter brings us closer to a more normal environment.”
Silver lining: Millennials aren’t playing along
One of the most fascinating points left out by the Feds is that Millennials aren’t taking part in racking up debt, with only 27 percent even holding a single credit card, many of whom are so riddled with student debt that they pay cash for any and everything.
Consumers over 30 are fueling the all-time high American debt, and it appears that hope is still seen in the next generation who isn’t participating in the trend.
October 1, 2014 at 3:51 pm
Until 2% monthly minimum payments are raised to 5%, consumer debt will rise. I recommend reducing everyone’s credit card debt across the board the exact amount needed to make a new 5% monthly minimum payment the same as the prior 2% monthly minimum payment.
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