Reported by Liku Zelleke
It was only recently that the announcement was made that the US economy was finally starting to recover. It was even later that the actual effects started to be felt in the homes of the people across the country.
The number of jobs created is increasing and people are slowly, but surely, finding their way back into the workforce.
But now, the Levy Economics Institute says that macro models are showing that another debt-laden financial crisis might be just beyond the horizon. Caused by increased borrowing, which translates into rising debt levels, the crisis might occur as early as 2017, and this time, it will be based on consumer and corporate debt.
The explanation that has been given by the institute is that, at the moment, the US can only maintain sustainable growth with the help of consumer spending. It is anticipated that Americans will continue to spend at an increasing rate, just like they have for the past couple of decades. For the majority, wages will not increase and neither will their wealth. The only option that will be left for consumers to sustain that spending will be what they have always been doing: borrowing, and then, borrowing some more.
This will be the reality for almost 90% of Americans.
By 2017, the growth will have reached its peak. As the predictions show, the middle- and low-income households will follow a trajectory of an ever-higher ratio of debt to income, while the wealthy ( top 10%) will see their debts decrease as their wealth rises.
The study indicates that the trend of the poor sinking more into debt and the rich getting even richer are correlated. In fact, it showed that the more the wealthy earned and then invested it back into financial markets, the more the 90% had to borrow.
These debt dynamics led to the economic recession, and now, they are being used to get out of the crisis – with no sign of when the continuous circle will stop.
Financial Juneteenth lessons from this article:
1) The shift in the American economy has become one that is heavily in-favor of the rich, but heavily dependent on the spending habits of the poor and middle class. The excessive consumerism being fed to you and your family is meant to leave you barely swimming above water, as the owners of assets are able to accumulate more and more wealth. The best way to avoid this trend is to find a way to own assets and avoid the temptation to overspend or use too much consumer credit. Its as simple as living within your means.
2) The pending crash in the US is inevitable, since the rising costs of education, real estate and medical care are creating an unstable economy. Wages are not rising to keep pace with these costs, as both government and corporations conspire to control the political system that might normally regulate irresponsible behavior in the economy. The plane is crashing and both financial literacy and political understanding of the environment in which you live can help you prepare the best economic moves for your family. It might even include leaving the country if possible and avoiding the failings of a dysfunctional government.