On Financial Myth Busting with Dawn J. Bennett, DiMartino Booth discusses a clever article that she recently wrote and published: "The U.S. Consumer: Are the Jetsons' Still On?" The article discusses the optimistic vision exhibited in the famous 1960s cartoon The Jetsons. Despite technological progress, most modern Americans are hardly living lives of ease and comfort.
"You would think with some of the advances that we've had in living standards since September 1962, when The Jetsons premiered, that Americans would be immensely satisfied with their lives," said DiMartino Booth. "But I think you have to go back to the influence of the central bank on American buying patterns, and actually encouraging American households to take on more than they can afford, to live outside of their means by using debt, and what a massive change that that has created for the average US household."
She continued, "But even if you look at corporations, and their propensity to take on debt in recent years, it too has started to go to non-productive ends, and of course I'm speaking about borrowing to buy back your shares. Again, wherever you have an era where interest rates stay too low for too long then the idea of debt, which can be good, tends to be bent and contorted."
Americans' debt rose to a record high of $3.64 trillion in June, more than a trillion more than the 2008 peak of $2.7 trillion. This rising debt occurs, though collective wealth has not risen. In fact, median incomes have been stagnant for over a decade. According to DiMartino Booth, the Fed was encouraging homeowners to use their homes as ATM machines, and that had the unintended consequence of fueling higher education inflation— resulting in an increase in student debt and subprime auto lending. Because they could take out cash on their homes, Americans spent more on education than they would have otherwise. These two categories of debt have fueled the increase of debt to $3.64 trillion, DiMartino Booth said.
Bennett notes that with virtually no capital investments, a very immobile labor market, and stagnant job creation, we're already in a recession. DiMartino Booth added that she thinks consumption is holding everything up.
"You saw in the retail sales data that it looks like auto purchases have peaked and rolled over, and we're starting to see that become more apparent in subprime auto losses, and defaults as they start to pile up," she said. "Look, if you have the U.S. consumers step back in any shape or form, and you add it to all of the indicators that you've just detailed, we're in recession."
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