Mr. Tell, I appreciate the notion that people are “maxing out credit.” But I’ve heard this explanation now for almost three years. You don’t “max out” credit for three years. Trust me. I used to do it. It’s gone in a few months. With home prices falling, people can’t be taking out money from their houses. So I just don’t buy the hypothesis that consumer spending is the result of a boom in credit. Moreover, credit rates are high as heck, while banks won’t lend to ANYONE. (I have stellar credit and couldn’t get a lousy loan for $50k for my business from Chase, which I dealt with for 30 years).
I didn't make myself clear. I meant that the U.S. government has become the source of borrowed money which is propping up the economy. Some of the people at the shopping malls are employed today simply because the U.S. is spending 1.6 trillion dollars per year that is borrowed money. To some extent, there isn't even a "lender", but just the Federal Reserve printing money.
Whatever prosperity is sending people to the malls today can be expected to disappear if the deficit spending is reduced or eliminated. Evidently 40% of federal spending is borrowed money.
I don't see how this can continue. We're either going to be inflating our currency at that rate our we will be reducing spending at that rate. The trend line has got to be toward a painful future of having some money but rapidly rising prices or having no money due to joblessness. The middle ground of reducing deficit spending to 800 billion per year simply distributes the pain differently but won't reduce the total pain.
The deficit of 1.6 trillion dollars per year is equivalent to about $20,000 per family of four EVERY YEAR. The family of four won't be getting a monthly bill, they won't see the incredible interest burden that credit cards carry, but they will be paying for it sooner rather than later. This federal annual indebtedness is in ADDITION to whatever personal debt is carried by the family.
Individuals "max out" their credit cards when the lenders refuse to lend more. The U.S. government has obviously "maxed out" its credit cards or we wouldn't be seeing the Fed buying our debt. There won't be enough federal revenue to pay the interest rates that the world will demand should the Fed stop buying our debt.
I can identify with that. I similarly have great credit and didn't get a loan for a condo I was buying for a family member. The loan agent was telling me all kinds of contradictory things about why the loan wouldn't qualify for Fannie Mae. It became obvious to me that what happened is that the people upstairs at the lender simply threw a switch and dictated that there would be no lending.