Today it was announced that during the month of September 2013, British consumers borrowed more money on loans and credit cards than at any point the year. So what? What does this have to do with us Americans and why should we be concerned.
The answer is twofold. The first reason is obvious; because as the British go, so do Americans and vice versa. Americans borrowed more money in loans and on credit cards in 2013 than in any other prior year of reporting. Secondly, if our economy is on this so called “road to recovery” that the U.S. Government is reporting to us, that reporting would seem to be a little bit suspect, raising questions as to why we are borrowing so much money. By reason, it would appear that this recovery is being fuelled, not by an uptick in the economy; rather it is being fueled by debt.
Now granted a lot of that borrowing was done by homeowners who wanted to take advantage of lower interest rates to refinance their homes. However, that is not an indication of a growing economy; that is simple shuffling the deck, to get a lower monthly mortgage payment. However, when the government twists these numbers to say that “consumer confidence is improving” it would be a complete fallacy.
If one understands that consumer spending accounts for almost two-thirds of U.S. gross domestic product (GDP), this should be of deep concern to U.S. borrowers. In addition, this has nothing to do with the government’s debt, which is currently printing $85 billion per month (that is not a misprint, billion is the correct term) in new money each month. This is turn will eventually lead to massive inflation that will follow, however no one is paying any attention to that right now.
Finally, yesterday the U.S. Senate approved the nomination of Janet Yellen to lead the Federal Reserve Bank, replacing Ben Bernanke, who is stepping down after serving as the Fed chairman for the last eight years which was mostly dominated by the Great Recession and the Fed’s efforts to combat it. Yellen is thought to be to the left of Bernanke. Therefore, do not expect to see any easy of this debt spending by our government anytime soon.
Okay, so what does this all mean? In a nutshell, Americans, the British and probably the rest of the world is borrowing money at unprecedented rates. It is only a matter of time before something has to give, and that “give” will be higher interest rates on just about anything you need money for, therefore stalling any type of recovery even further. (Think Jimmy Carter in the 70’s and 18% interest rates!)
As always, we highly urge all Americans to get rid of their debt as soon as is reasonable possible. Start with your credit cards and other unsecured debt first, followed by your secured debt. That way, when the next “balloon does goes up,” you will be well protected from the fallout of inflation.