| > What this doesn’t really address is the why? Consumers base purchasing decisions on their monthly outlays. When interest rates go down, they can afford more in payments, so they increase their consumption until their expenses match what they can afford. A good example here is housing. The US and many EU states provided an under-appreciated amount of stimulus during the COVID-19 lockdowns. Even when this wasn't given directly to citizens, as it was in the US, it still trickled down from businesses to labor through steady wages. It also kept the wheels of the economy greased by keeping businesses out of bankruptcy, so when the lockdowns ended, the unemployed could return to work. The steady wages piece here is key, because the lockdowns led to a significant reduction in daily expenses. So, i.e., if you had 5K in monthly expenses that were matched by 5K in income, for a non-negligible amount of time, you had 5K in income going against 3K in expenses. Even without direct stimulus payments, this led to a significant increase in average savings. Now that the lockdowns are over, consumers - who now have money in the bank - also happen to have access to extraordinarily low interest rates (too much money chasing too few investment opportunities). Because of post-COVID structural issues, there is also an increase in the demand for labor, so wages are also increasing. And there's the much touted structural part of all of this. We've never, ever (at least, from the early 20th century), seen as large of a reduction in global peacetime economic activity as we did in early-mid 2020. The closest example out there is the end of WW2. We've also never seen global economic activity drop, and then rebound, in such a short period of time. > Maybe everyone can afford a jet ski all of a sudden? No, the stims didn’t really do /that/ kind of wealth expansion. Getting back to your post, debt allows leverage. Consumers now have either lower monthly expenses (if they used their savings to pay off debt) or they have more money in the bank to use as a down payment. To use your example of a jet ski, a Yamaha EX at $7,200 USD can be purchased with 1K down and a 60 month repayment plan. The monthly payments will be $118 USD at a 5.2% (high) interest rate. So, the average American consumer, using only government-provided stimulus checks (3.2K per person), can afford the down payment along with almost two years of monthly payments for a jet ski before they have to start paying from their income. Can they afford the jet ski outright? No, but consumer purchases are based on short term impulses, and the US stimulus checks, along with easy access to low interest debt, certainly pushes the equation towards consumption. |
Yeah, no. A lot of it just went into stock buybacks and other navel gazing.