Americans are once again spending money because credit cards are beginning to be maxed out again. Household debt grew 0.25% in the fourth quarter of 2011. Although this is not a huge uptick, it is the first uptick since the 2008 crash.
Economists are speculating that this means consumer strength is rising and could continue or as Paul Edelstein, the director of financial economics at HIS Global insight says, “Consumers have been more willing to use credit cards for shopping, signaling renewed confidence in their financial and job prospects” (WSJ).
Aside from consumers this also means that banks are lending again and that people are borrowing, both very good signs. Conversely, this is a long term bearish event. Everything is fine and grand right now with low interest rates. However, once interest rates go up again and they will, pop goes the debt bubble. People will not be able to afford their debt interest and can default on their debt obligations. This could get pretty messy. Unfortunately, banks are in an awkward spot because they can make more money by issuing credit cards to consumers than they can from loaning money to businesses.
The problem is that consumers are spending, spending, spending and using their credit cards for payment. That is all fine and dandy if you pay off your balance at the end of the money but most people do not do that. Combine that over the course of a few years and there you are! Maxed out credit cards with huge interest payments. It is only a matter of time before the debt crisis is here and in full force.
Most Americans have no idea that this will be the main economic issue for this decade and possibly beyond. The United States is drowning in debt on all levels: government (state and federal), consumer credit cards, student loans, mortgages, car payments, etc. This can not continue and end peacefully. I have long been a whistle blower against the growing debt issue in the US but it seems as though people continue to shrug it off, much like they did back in 2007-2008 when banks were taking on too much risk and people couldn’t pay mortgages. That was a taste tester for what is to come. This very well could be what bankrupts the country. Government officials have not yet seen the dire straits of the situation and neither have consumers. Too bad they probably will not notice it until it is right in their faces, much like 2008. “Those who do not learn from history, are doomed to repeat it”.