Debt the Good Times Roll On
During these turbulent and chaotic times, a growing sum of American debt is our constant! According to the New York Federal Reserve, everyone owns each other’s stuff. There’s $14 trillion of debt in our system. That’s a manageable tab, isn’t it? Isn’t it?
Student loans, mortgages, and credit cards dominate the wrong side of the average household balance sheet, demanding billions in servicing costs alone. However, testifying on Capitol Hill yesterday, Federal Reserve Chair Jerome Powell said he “wasn’t particularly concerned.” As long as consumers remain confident, the economy will grow.
With all things in moderation, debt is good. It helps to supercharge a company’s growth and allow entrepreneurs to fast forward time, using promises of success tomorrow to get access to money today. On the stock market, companies like Coca-Cola and Union Pacific can justify borrowing more because of their stable revenues. Most of the time when a business “levers up” as they say, its shares pop too as expectations are raised!
However, like apples and bananas, debt can go bad. Some investors fear people are getting too relaxed in this era of low interest rates, living the high-life on borrowed money which one day will need returning. If and when things go south for the economy, we could all be chasing each other for money we don’t have. Companies and households would be forced into bankruptcy and foreclosure, and confidence in the stock market would take a bruising. Time to work on that credit rating, then!