Credit is artificially cheap thanks to the Federal Reserve’s unwise experiments of the last 6 years. This cheap credit has filtered down to the consumer to some extent. But now prices are rising (also thanks to the Fed) and this cheap credit is being used by consumers just to make ends meet – again. (While at the same time feeding the rise in the price of consumer goods.)
Debt is a valuable tool to be used by most sparingly. Americans however have a hard time controlling their habit. When the debt drug is made available at below market rates sooner or later the party will get out of control, one way or another. Sadly for some, the poor and much of the middle class, the relatively easy credit isn’t cause for a party but a means by which to put slightly more food on the table. These folks are the ones who are most hurt at the end of the credit cycle.
Further down the credit spectrum, the world of consumer debt has changed even more profoundly. For the “have-nots,” the continued absence of wage growth has resulted in an unprecedented boom of non-discretionary credit. Ordinary life in America now simply requires more debt rather than less to live. It is needs, not wants, that are behind the post-banking-crisis growth in consumer credit.
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