Consumer Credit & The American Conundrum

Real Investment Advice/Lance Roberts/09-07-17

What to do? This is not as an innocuous question as one might think. For most American families, who have to balance their living standards to their income, they face this conundrum each and every month. Today, more than ever, the walk to the end of the driveway has become a dreaded thing as bills loom large in the dark crevices of the mailbox.

…The burden of debt that was accumulated during the credit boom can’t simply be disposed of. Many can’t sell their house because they can’t qualify to buy a new one and the cost to rent are now higher than current mortgage payments in many places. There is no ability to substantially increase disposable incomes because of deflationary wage pressures, and despite the mainstream spin on recent statistical economic improvements, the burdens on the average American family are increasing.

…Beginning in 2009, the gap between the real disposable incomes and the cost of living was no longer able to be filled by credit expansion. In other words, as opposed to prior 1980, the situation is quite different and a harbinger of potentially bigger problems ahead. The consumer is no longer turning to credit to leverage UP consumption – they are turning to credit to maintain their current living needs.

There are currently clear signs of stress emerging from credit. Commercial lending has taken a sharp dive as delinquencies have risen. These are signs of both a late stage economic expansion and a weakening environment.

PG View: This is a rather distressing assessment of the current situation and goes a long way toward explaining why growth remains anemic with little prospect for improvement.

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