In our modern day and age of economics, the health of the economy is usually measured by consumption. How much is being spent. So, governments and large companies look at measures such as gross domestic product (GDP) as the single most important metric to track.
GDP is a measure of how much money is spent – that’s all.
It doesn’t track who is spending, or where they got the money. Was it from their paychecks? From savings? From borrowing?
Economists don’t care care. After all, to paraphrase famous investor Ray Dalio, “one person’s spending is another person’s income.”
Even if that spending comes from borrowing. From debt.
Some portion of spending in an economy always comes from debt. There have always been people, businesses, and governments who have borrowed money (and no one borrows money to just sit on it, do they?)
What is relatively unique over the last century or so, though, is that the entire economy of nearly every country in the world is based on debt. It’s just a natural by-product (or intended “feature,” depending on if you benefit from it) of using a fiat monetary supply and fractional reserve banking (I’ve talked about fractional reserve banking before, if you need more information about that).
And because our economy is largely driven by debt, it’s a crucial number to watch. Because what happens with debt, especially for everyday American household spending, has a massive effect on the economy.
It’s all interconnected.
And that’s why today’s struggle is alarming…
If there are “sectors” of the economy that are having the most difficult time right now, it is Gen Z and Millenials.
Sure, half or more of Gen Z is still in school, but a big portion of that generation are already out of school, including having bachelors and masters degrees, and Millenials are nearly all out of school and working or looking for work.
These are the future long-term workers in our economy. These are the people who older generations need to buy houses and buy food and spend money to keep the economy going so that those older generations can retire on their investment returns.
Going back to our discussion of borrowing, FOXBusinessreported on the latest New York Federal Reserve bank report:
These are the workers just starting out – with young children still at home – who have the drive to provide for their families.
And nearly one in every ten can’t make their basic credit card payments each month.
Whether they racked up debt on smart purchases or on wasteful spending, it doesn’t matter. Right now they are struggling.
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