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If this is true, this is the best trend to happen to the American economy in decades. When people borrow past their means and beyond, they lose their ability to
by programminggeek 13y ago
If this is true, this is the best trend to happen to the American economy in decades. When people borrow past their means and beyond, they lose their ability to buy things every month because they are so in debt that they spend a huge amount of their income just to pay on debt each month.
That means new home purchases, car purchases, and every day spending like entertainment or food or clothes goes down because at some point you just don't have the money to do those things.
When people free up their cash flow they can actually spend MORE because more of the money is going to actual buying of things and not just servicing debt. Servicing debt doesn't create jobs, it creates risk for the consumer and the bankers financing them. If the consumer loses their job, they could default on their house, credit cards, educational debt, etc.
In short, if our economy is built on debt, especially consumer debt, it is built on a shaky foundation of risk and uncertainty. The debt-based spending isn't real and it costs everybody a lot of money over time.
A reversing of that trend is a good thing.
- miahi 13y agoThis also means that people spend less until they get to that cash safety. Yes, they will be able to buy things later, but in the meantime they are not, and an economy based on money flow cannot get better until the flow gets bigger. Also, a few years of saving money will change the spending habits, and there is no way to switch back to spending more money immediately. Nobody will say "hey, I got enough money now, let's go spend!" The saving need came as a shock when the banks collapsed. The only shocking way to get people back to spending more is winning the lottery, but that's not a group option.
- jsymolon 13y agoYes, it's a good thing however I don't think that it's going to be "reversing" any time soon. As stated above, the intrinsic problems haven't been addressed at all. Not sure what the population at retirement age is going to do. My parents are semi-retired e.g. laid (sic) off. My dad is 72 and still looking for work. Icing on the cake: the stupendous amount of debt owed by college grads.