Temporary cut in spending should lead to recovery

Financial institutions helped develop consumer credit in the 1920s, as postwar prosperity raised the standard of living and old ideas about the burdens of debt quickly disappeared. Americans became so enamored of credit and layaways that many couldn't survive without them.

Of course, the Great Depression eventually changed that.

Sound familiar?

"There's a very odd and overwhelming parallel between what's happening now and the aftermath of the 1929 stock market crash," says Charles R. Geisst, author of the recently published "Collateral Damaged." "Credit in both time periods was vastly overextended, leaving the deflated consumer unable to keep the momentum going and a depression or recession to immediately follow," he said.

The average American household carries more than 13 credit cards, and more than 6,000 different types of cards are presently on offer.

"There's a connection between consumer spending and economic markets that eventually bust under certain conditions," he said. "Right now we'll see a slowdown in spending that will put us back on the track the U.S. was on in the 1950s and 1960s. We can see that these problems are cyclical."

Share This Story