An Anxious U.S. Consumer
Let's take a closer look at the U.S. consumer, with a particular focus on the outlook here with respect to incomes and debt. The term "deleveraging" is one often heard amid discussions on these matters. As you probably know, this pertains to consumers cutting back on spending in order to save more and pay down debt -- or simply to folks defaulting on their debt. Higher default rates, meanwhile, makes banks reluctant to lend, thus limiting the supply of credit. As a result, both demand and supply are constrained, and each is part of the deleveraging process.
What's of interest here is why households take on debt, or why they choose to pay it off. Households tend to smooth consumption over time, such that a volatile income pattern doesn't make for a volatile consumption pattern. When consumers expect their future income to increase, they take on more debt so that their consumption increases a bit more now, in accordance with their expectations of a big jump later. And, of course, the reverse is true as well....444 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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