This is a major worry. The fate of the economy now rests on the shoulders of the American consumer, who’s spending amounts to 70 percent of all economic activity.
When people go to the mall and buy televisions or eat out, their money circulates through the economy. When they tighten their belts, austerity ripples out and chokes growth.
Through the years of the housing boom, many Americans came to treat their homes like automated teller machines that never required a deposit. They harvested cash through sales, second mortgages and home equity lines of credit an artery of finance that reached $840 billion a year from 2004 to 2006 according to work by the economist Alan Greenspan, the former Federal Reserve chairman.
That allowed Americans to live far in excess of what they brought home from work.
Average household debt has swelled to 120 percent of annual income, up from 60 percent in 1984, according to the Federal Reserve. And now the banks are turning off the credit taps.
