We know about Trump's erratic and reckless trade wars and the impact that they are having on the economy. We know foreign money is fleeing the US. We know that as deportations escalate, that, too, will have an impact on the economy. Firing hundreds of thousands of federal workers and choking off federal dollars entering the economy will hurt a lot. The Atlanta Fed is predicting a sizable contraction in GDP.
All of this may or may not lead to a recession. However, if things start to go south, there is a time bomb ticking in the heart of the American economy: credit card debt.
Annie Lowery lays out the two-tiered credit card system. Even when our belts were tightest, we would sacrifice savings rather than carry credit card debt. It's incredibly destructive. That means we have a great credit score and just upgrade one of our credit cards for more rewards - rewards that are paid for by fees and interest on borrowers who DON'T pay off their cards.
Meanwhile, credit card debt - much of which was assumed during the post-pandemic inflationary boom - is exploding. AOC and and others are proposing capping credit card interest rates at 10%, and you can understand why. However, doing that will dramatically restrict who can buy on credit. When that happens, people will spend less. A lot less.
For all the talk of the stock market crash of 1929, it was massive levels of credit buying that dried up when financial firms got pinched by the market crash. The massive waves of bank failures was the accelerant that turned a market correction into the Great Depression. Easy credit creates the bubble, Hayek was right about that. It created both a consumer and stock bubble in the 1920s, it created the housing bubble of 2008.
Has it created a similar bubble? Probably not exactly, however I think - uninformed opinion here - that we are an economy that is being subsidized by consumer debt, and if that collapses, the whole economy could spin quickly into the gutter.
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