November 3, 2018        home | more politics

Another Debt Crisis?

Happy Labor Day!"

President Trump is taking credit for what he describes as the economy "doing better than ever before." It's a claim that could have better considered history.

A growing economy depends on people having money to spend. Extremely wealthy people buy things too, but without a growth in spending by ordinary consumers spending by the more wealthy has never been enough to prevent a recession. Economists tell us that "the rich don’t spend nearly as much of their income as the middle class and the poor."

The middle class and poor can keep the economy going by borrowing. They did this going toward 1929 and again going toward 2008, years of growing debt and bubbles that burst.

Economists describe the Great Recession of 2008 as a banking crisis with roots in a debt crisis. Robert Reich writes: "Between 1983 and 2007, household debt soared while most economic gains went to the top."

Today, another debt crisis is being described as on the way. During the first three months this year, household debt was at an all-time high of $13.2 trillion. Today, almost 80 percent of Americans are now living paycheck to paycheck. In a recent Federal Reserve survey, 40 percent of Americans said they wouldn’t be able to pay their bills if faced with a $400 emergency.

The poor can't cut back on their spending. And if the middle-class did, the economy would decline. It would decline without government projects and government spending taking the place of consumer spending.

The growing debt problem would end it the common people received a bigger share of the wealth created by their labor and by machines. But, as Trump continues with his rosy assessment, that ain't happening, and killjoy economists are warning people to get ready for another crisis.

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Copyright © 2018 by Frank E. Smitha. All rights reserved.