According to Reuters consumer spending increased by 0.4 percent in May and 1.1 percent in April. This strong consumer spending has led the Atlanta Federal Reserve to raise their second quarter spending growth expectations from 4.1 percent to 4.3 percent on an annual basis. Most would consider this good news since our economy is so heavily dependent on consumer spending. I have a major concern though.
How much of this increased spending is through debt? There has been news article after news article over the past year shining light on record setting consumer debt. I thought after the last recession we would have finally learned our lesson but for some reason we keep wanting to play with fire. Car loan debt is at an all time high, credit card debt is at an all time high and the percentage of credit debt being paid off is at an all time low.
These are not pretty numbers and it puts many family in a vulnerable state. If all the dark clouds that are brewing on the economic horizon start to move in many consumers will get crushed. In general I’m a very optimistic person by nature but the boom and bust economic style that is all the rage today is in full force. This simply means recessions are not only going to happen, they are a direct side of effect of our Keynesian monetary policies.
I have many, many worries about the so called industrialized nations of this world. Debts keep growing but our economies are not. Eventually we have to learn that we can’t spend our way out of recessions. We can’t keep trying to create the latest, greatest, shiniest toy and hope everyone will run out and buy it. The concept of economic stimulation through debt has failed. We need a new a plan. Our politicians have failed us big time. The first step to recovery is getting our individual financial houses in order. It is the one thing we have and total control over.
I have no problem with an economy built on consumer spending but that spending has to be cash, not debt, from all parties involved.