Debt and Recession

The forced penny pinching is going to hit the American economy.

According to the Globe and Mail article “This time, consumers won’t come to the rescue”:

But U.S. consumers, struggling with record debt and falling home prices, won’t be coming to the rescue this time.

Their spending stalled in July and economists say there’s a significant risk personal consumption will contract over the second half of the year.

U.S. consumers are in worse shape today. Their debt equals about 25 per cent of their net worth today, compared with about 16 per cent in 1990. Their savings rate is zero, and the value of their homes is in free fall.

Canada’s consumers are in better shape than their American cousins. Canadian household debt, for example, is about 20 per cent of net worth, which is about where it’s been since 1989, according to data compiled by Mr. Marion.

Housing prices are declining in Canada, but not plummeting as they are south of the border.

With credit harder to get, many families will have no choice but to find creative ways of saving money. However, we will argue that frugality does not mean a lower quality of life. By spending judiciously, you can enjoy life without the stress of having to pay bills at the end of the month as you drown in debt.

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