The wonder years – over 70 percent of GDP comes from personal consumption. For the past decade home equity and credit from other sources fueled growth because of falling household incomes. What happens when credit contracts and home equity evaporates?

MyBudget360.com

October 11, 2011

In a debt based economy a credit crisis is similar to an uncontrollable virus spreading from house to house.  The slow infection hibernated for decades until it went into a pandemic.  It is troubling to see how the middle class is slowly being dismantled.  However there is one silver lining of the home price correction.  Americans spend most of their money on housing as we will highlight later in this article.

The media never bothers showing a detailed budget to Americans since the average per capita income is $25,000 and they don’t want to scare off people from purchasing that new trinket.  Over 70 percent of our annual GDP comes from personal consumption expenditures.  We are a spending nation but for the last decade, much of that spending came from the phony equity brought on by the housing bubble.  Inflated home values really only benefit the banks at this point in time.  With smaller incomes Americans would receive an automatic boost if they spent less of their smaller paycheck on housing.  With credit contracting and home prices moving lower, there is little reason to believe that we will suddenly see a resurgence of debt based spending.

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