Posted on 09/24/2025 3:32:33 PM PDT by CIB-173RDABN
In the past five decades, the expansion of consumer credit has transformed the American economy. What began in the 1970s as a convenient financial tool has become a fundamental pillar of daily life for most households. Credit cards, followed by newer lending models like "Buy Now, Pay Later," have fueled consumption, enabled lifestyle inflation, and propped up economic growth. But beneath the surface lies a troubling reality: easy credit has created a disconnect between buyers and sellers, distorted real demand, inflated prices, and built a fragile foundation of debt.
In a cash-based economy, buyers can only spend what they physically have. This creates natural boundaries in the market. If a product is too expensive, the buyer walks away. The seller, in turn, must either reduce the price, offer better value, or go without making a sale. This dynamic enforces pricing discipline, keeps inflation in check, and ties the health of the economy to actual income and productivity.
But credit changes this entirely. When a buyer can borrow — especially with few restrictions or consequences — they no longer need to consider whether they can truly afford the purchase. The seller still gets paid, even though the buyer hasn't paid in full. This breaks the feedback loop between affordability and price. Sellers can (and do) raise prices knowing that consumers will find ways to pay later — through credit cards, financing plans, or installment apps.
This dynamic has played out across every sector of the economy: housing, healthcare, education, consumer goods, travel. Prices continue to climb, even as real wages stagnate, because credit fills the gap. Consumers maintain the illusion of prosperity, but it's borrowed prosperity, often at double-digit interest rates.
History offers clear warnings. In 1929, margin debt let average Americans buy stocks they couldn’t afford. The moment prices dipped and margin calls came due, the system collapsed. In 2008, it was subprime mortgages and speculative housing debt. Today, it’s the everyday use of unsecured consumer credit to fund lifestyles — not for luxury, but for survival.
When credit is easy and endless, prices don’t reflect real market demand — they reflect artificial demand, built on future obligations. But that future always arrives. When enough consumers can no longer make minimum payments — not just because they’re irresponsible, but because the costs of living have outpaced incomes — the system will break. The bubble will burst.
What happens when millions of households default on credit cards and BNPL loans with no collateral to back them? It’s not just a personal crisis — it’s a systemic one. A wave of defaults, a collapse in consumer spending, and a shock to the broader economy are all real possibilities. And unlike 2008, there’s no house to repossess — just shattered credit and unpaid bills.
In short, easy credit grew the economy, but it also eroded its foundation. It turned debt into a substitute for income and pricing into a fiction. If the U.S. had remained a primarily cash-based consumer economy, sellers would have been forced to adapt to what people could actually afford. Prices would have stayed grounded. Instead, credit allowed both prices and debt levels to spiral upward — and now, we face the consequences.
The warning signs are flashing. Rising delinquencies, record-high credit card balances, and an exhausted consumer base point to a system stretched beyond its limits. If we continue to rely on debt to sustain consumption, we’re not avoiding collapse — we’re merely delaying it.
It sounds like exactly what is happening with the US government. Trump keeps saying that we are a rich nation when in reality we are $35 trillion in debt. The USA is the ultimate living on borrowed money economy.
Nicely said.
That’s what happened with the student loan business. They handed them out to anybody who applied, and they could use them for anything they wanted, possibly even tuition but a lot of times trips to Europe.
Absolutely excellent. And we all pay for it in the long run. There are two generations now who think that living on credit and then claiming bankruptcy over and over is a normal social practice and economics. Consumerism beyond means. Keynesian economics does NOT work if it is all on credit and never gets paid off...
For the last 40 years, we have tried to convince ourselves that increasing the national debt is the same as real economic growth. Now there is a small attempt to reduce the size of government spending, the real state of the economy is being exposed. Not a pretty picture.
Between 2023 and 2024, the U.S. GDP grew by about $1.5T while the national debt grew by about $2.3T.
Just think about that. It’s like paying a $53 surcharge to get $100 out of an ATM.
Another good one. If you haven’t already read it, I recommend Thomas Sowell’s “Basic Economics”.
I see the word “education” in the middle of one sentence, but I don’t think the student loan mountain got enough attention in your writing. It’s not just the government standing by and watching it happen; that’s a case of actively participation.
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I did another essay last week on Student Loans. This was more of the situation in general.
Well put.
And the govt dept is backed by the”full faith and credit” of the US citizens, over which we have no control.
Yeah, I’m about to go bankrupt.
deep in debt and cashflow too small.
I owe my Soul... To the Company Store...
“I owe my Soul... To the Company Store...”
I support thousands of illegal aliens and what do I get?
Another day older and deeper in gubmit debt.
Let’s keep the names of ALL congress-critters who voted for these “continuing resolutions”, etc from now to the reasonable past, so that we can find them and make them really regret their actions when the collapse begins.
The insane amount of money people are spending on McDonald’s, according to new study
Car max charges 17-29% interest to finance a car. There ought to be a law, but then where would legislators get their kickbacks?
Just like multigenerational reserve-currency status has created a disconnect between actions and consequences that makes our positivistic society seem sustainable.
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