For the first time credit card debt for US consumers has topped $1 trillion. While you’re at it throw in another $1.6 trillion for student loan debt. If you use the word “trillion” enough it tends to lose its meaning. When I was a kid a trillion dollars was real money. We can’t have a serious conversation about debt without including the US National Debt, sitting at a cool $32 trillion. The US has not been debt free since President Jackson sold land to pay off our $75 million dollar debt in 1835. Since then, our debt has grown considerably but so has our wealth.
When is debt good? (or at least productive)
Higher credit card spending and loans can stimulate the economy and contribute to GDP growth. In the 1980s, Americans began borrowing to maintain a middle-class life which continued from 1983 to 2008 when credit card volume increased twenty-fold. Higher consumer spending can also be good for businesses, which can lead to job creation and economic growth. All because consumers decided to access their credit cards.
When is debt bad?
High levels of consumer debt can create a burden on families when a significant portion of their income is used to pay interest. This can lead to reduced discretionary spending, saving, and investment. Higher interest rates play an important role as consumers focus on paying off high interest rate debt rather than spending. Although this sounds responsible, it is not always good for the economy when the consumer chooses to pay debt over spending.
But my uncle likes to spend money.
Yea, there is that. Uncle Sam! As I said, we can’t have a serious conversation about debt without including the US National Debt. Attacking my uncle is a popular pastime for those looking to score political points, which I admit to doing. The primary purpose of issuing debt is to finance government operations and programs when taxes are not enough. Government spending, like consumer credit card spending can help grow the economy. But how much Government debt is too much? As of Q1 2023 the US debt was 118% of GDP, which was the same as it was in 1946. Higher taxes and economic growth reduced the debt level of the 1940’s. It is not clear what it will take this time, but higher taxes shouldn’t be ruled out. We measure government debt as compared to a percentage of GDP, pretty much the way a Mercedes Benz may be expensive for the fast-food employee but not the owner of the restaurant.
Sources:
Smithsonian
Oxford Research Encyclopedia
Debt.org
Wikipedia
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. No strategy assures success or protects against loss. Please visit our website www.planipg.com for more information and useful tools.
LPL Tracking 1-05378088
