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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
by dpweb 10y ago
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.
- runeks 10y agoAlso, the more indebted the consumer, the higher the impact of rising interest rates on consumer spending. Every time the Fed raises rates by 0.25 percentage points, consumers need to pay an additional $10B in interest per year. Consequently, the rate of interest increasing by 1 percentage point today is not the same as it increasing by 1 percentage point pre-2008 (when total consumer debt was lower).
- provost 10y agoThis is interesting.. source?
- rootusrootus 10y agoThat doesn't quite make sense. The interest on revolving debt is fixed at the level it was when you acquired the debt. Raising the rate across the board will definitely cause a lot of people to pay more, but only to the extent that they cannot stop themselves from buying more things on the card.
- Spooky23 10y agoOn secured loans sure. Credit cards are always priced at prime+margin, based on 30-60 day average balance. That can change every 30 days.
- tptacek 10y agoThat is an important point, but it's not a point that falls out of the country's consumer debt to GDP ratio. The first question you should have with a headline like this is, "is $4.1 trillion a strange number in its proper context". The comment upthread is pretty valuable (as is 'cylinder's rebuttal).
- adventured 10y agoWhere isn't that true in the developed world currently? Very few places. Take a look at the extreme household debt to income ratios in Denmark, Sweden, Canada, etc. Look at the completely collapsed savings rate in Japan (stacked against their catastrophic budget / public debt situation that demands ever greater funding, while the economy has near zero spare taxing capacity). Japan has seen their real standard of living drop by at least 1/3 in 25 years and it's continuing to erode. That's the world's #3 economy and formerly an economic juggernaut. Or look at the financial situation across most of the EU or Eurozone - most of Europe is hooked on between zero and negative real interest rates. Italy is in a ten year rolling depression. Spain, Portugal and Greece still haven't recovered. Russia's commodity based economic miracle is long over, as the price of oil isn't going back to $100 any time soon. France is averaging wage growth about 1/5th that of the US. Germany's economy has barely net expanded since 2008. Or take a look at the long-term unemployment figures for most European nations, contrasting 2006 vs 2016, it's clearly dire. The US is in better shape than all but a few developed nations. That includes unemployment rate, income levels, wage growth, GDP growth, household income to debt ratio, cost of living, housing affordability.
- thechao 10y agoBut why? Is there anyplace to read about this?
- AnthonyMouse 10y agoA large part of the problem is that the international financial industry has entirely too much quiet political power. So we end up e.g. subsidizing mortgage interest and student loan interest instead of subsidizing e.g. new housing construction and teacher salaries. The result is that people borrow more money, creating much greater exposure to interest rate fluctuations (but much higher profits for lenders). Other countries don't have exactly the same policies but they follow the same trend. Income taxes rather than consumption taxes that encourage spending/borrowing and discourage savings, sold as "the rich wouldn't pay consumption taxes" even though they don't pay income taxes either, examples abound.
- SilasX 10y ago
- walshemj 10y agoIn the UK recently they found that almost 25% of the population had less than £100 in savings