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American consumer gets marked to market

Posted by: Michael Mandel on November 19

Here’s another way to think of the consumer crunch. For years banks and financial institutions have treated lending to consumers as a low-risk activity. Individual Americans might default, but consumer loans in the aggregate were a low-risk, high-return asset.

Now the American consumer is getting marked to market. Lenders are realizing that lending to consumers can be a risky business, and the assets are not worth as much as they thought.

The result is that the expected long-term present value of consumer borrowing and spending is about to shift down dramatically. Is this good or bad? This will require a big reassessment of long term forecasts of the U.S. economy.

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Reader Comments


November 19, 2007 04:01 PM

Are you saying the long-term growth rate of the US economy will now be under 3% a year?

Note that Productivity stats have recently been strong.

Joe Cushing

November 20, 2007 10:47 PM

I think, in the short run the answer is obvious but in the long run it is fuzzier. What will the impact of people having less credit be? Will people save more to buy the things they want? What effect would that have on rates? on aggregate net worth? on unearned income/loss? Another question is, will less credit just mean there is a pause until people can spend from income in the past instead of from income in the future?

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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