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VodkaPundit

Tell Me About the Sustainability, George

June 11th, 2014 - 9:42 am

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Uh-oh:

America’s addiction to credit cards is flaring up again. This is either really good news or really bad news.

Well, if you’re simply rooting for GDP growth, without regard for how it occurs, you can argue that this is a great sign. Roughly 70% of US economic activity is driven by consumption. And a rise in credit card use suggests that consumers are ramping up their buying. (Other data, such as the worsening US trade balance on higher imports of consumer goods (paywall), would seem consistent with that view.)
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But if you care about the long-term sustainability of US economic growth and the financial health of American households, it’s not particularly heartening to see signs of backsliding into a widespread reliance on credit cards.

I’m going to go — surprise! — with “really bad news.”

Look, putting stuff on the Visa isn’t such a bad idea when your income is rising and you’re making some large, one-time purchases. But I’ll remind you that total US consumer spending actually shrank slightly in April (-0.1%), which means that Americans bought tons more stuff on credit at a time when they were spending less overall.

So what does that say about the real state of our earnings?

Probably nothing good.

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All Comments   (5)
All Comments   (5)
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It's great when employment and production is up. People making large purchases on credit backed by rosy financial assumptions for the futures is peachy.

'course, none of that is currently the case, so it means people are using credit because they have no choice. That's bad. Really, really bad.
19 weeks ago
19 weeks ago Link To Comment
When you're putting gas and groceries on the Visa, you're pretty much f*cked.
19 weeks ago
19 weeks ago Link To Comment
Not always. I use my credit card for my major bills and kill the balance once a month, purely for convenience. I don't know how much credit card debt is like mine, but to create a Whoopi-ism, it's not debt debt.
19 weeks ago
19 weeks ago Link To Comment
I'm with you, PfP. I guess for us it is a spending card and not a credit card. The balance is paid off automatically in full every month. But gas and groceries go on it. Phone and cable. Insurance. And just about everything else. It's convenient, but the bank pays us over $1000 per year in cash back bonus for using their card.
I'm assuming Stephen is, however, not referring to this type of credit card use. And he's probably right.
19 weeks ago
19 weeks ago Link To Comment
He's not, and the "old AMEX" model of credit use is such a tiny minority these days as to be statistically irrelevant.

A lot of people are really, really screwed, and it doesn't help that many of them are stupid to boot.
19 weeks ago
19 weeks ago Link To Comment
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