This easy credit consumer created a false economy in the United States for years and this impacted the global economy.
”A few years back banks would lend to anyone who could fog a mirror.”
-Richard Yamarone
Chief economist at Argus Research Corp in New York.
American consumers had access to too much credit. This credit was used. Consumer debt rose dramatically over the past ten years. This credit was extended to the housing market. Not all of this credit was bad, though. This credit expansion sparked a housing boom as more and more people purchased real estate. Greater demand than supply caused healthy increases in property values. Consumers, keen to keep spending, borrowed this newly created equity in their homes. Over many years this caused manufacturers and producers to scale up to meet the market demand. They produced more, they hired more people and they made more money. Share prices rose. Investors gained. However, these profits and gains were false.
When the banks and financial markets collapsed, this was exposed. Those hired shouldn’t have been hired. Last hired, first fired. Profits and growth were false. The market is now taking back. Don’t see it as decline. See it as a restoration.
Some people, me included, could see this coming, one day. As far back as 2003, I was shocked to read about the magnitude of American consumer debt.
The grey bars in the above chart indicate periods of recession.
The present level of US consumer debt stands at around $15 trillion ($45,500 per household)
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