The Other Problem with Debt No One is Talking About
Nearly 7 years have elapsed since the official end of the Great Recession. By now it’s painfully obvious the rising tide of economic recovery has failed to lift all boats. In fact, many boats bottomed out on the rocks in early 2009 and have been taking on water ever since.
Last week, for instance, it was reported that U.S. credit card debt topped $714 billion in the third quarter of 2015. That’s up $34 billion from the year before. Shouldn’t the economic recovery allow consumers to pay down their debts?
Indeed, it should, if only the economic recovery was the result of real, economic growth. To the contrary, the recovery has been faux growth driven by cheap Fed credit and financial engineering. Mutual increases in prosperity haven’t occurred.
In particular, those outside the financial services business, and other bubble industries, like government lobbyists, have largely missed out on any increase in income or living standard. Good paying professional jobs that vaporized during the downturn have been replaced with low paying service jobs. Consumers have used credit card debt to pick up the slack.
Unfortunately, this short term solution sets up consumers for pain in the future. At some point, as debt increases faster than incomes, the ability to pay down the principle becomes near impossible. Even making the minimum payment becomes more and more difficult as new debt is added to the burden each month.
Playing with Fire
“We’re playing with fire now,” said Odysseas Papadimitriou, chief executive of credit statistics and analysis site CardHub. “Either an unexpected economic downtown or the continuation of current spending and payment trends could be enough to unleash an avalanche of defaults.”
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