Americans are worried about a looming credit crunch. That’s a big problem for an economy that runs on credit cards.
One of the reasons for economic optimism you’ll hear bandied about out there in the mainstream is “the American consumer is strong” and consumer spending is “holding up” despite price inflation. But nobody seems to ask an important question: how have Americans been able to continue spending?
The answer is credit cards.
So, what’s going to happen when consumers finally max out the plastic?
We may be getting close to that point, and many people are worried that they aren’t going to be able to borrow the money they need to keep spending.
As prices skyrocketed last year, Americans blew through their savings to make ends meet. Aggregate savings peaked at $2.1 trillion in August 2021. As of June, the San Francisco Fed estimated that aggregate savings had dropped to $190 billion.
In other words, Americans ate away $1.9 trillion in savings in just two years.
Poster Comment:
Americans ate away $1.9 trillion in savings in just two years.