The American economy keeps chugging along, defying predictions of a downturn. Jobs are plentiful, growth is steady. But across the Atlantic, British economists are sounding the alarm. They see an economy fuelled by debt, not genuine prosperity.
At the heart of the concern is consumer spending, which accounts for about 70% of US GDP. Americans are spending, but they are also borrowing heavily. Credit card debt has hit a record high of $1.1 trillion. Personal savings rates have fallen to levels not seen since the 2008 financial crisis.
“This is not sustainable,” says Dr. Eleanor Nash, an economist at the University of Manchester. “You cannot rely on borrowed money to drive growth forever. The bill will come due.”
US household debt overall now stands at $17.3 trillion, according to the Federal Reserve. Mortgage debt is the largest component, but auto loans and student loans are also rising. Delinquency rates are creeping up, especially among younger borrowers.
The US government is also deep in the red. Federal debt has topped $33 trillion. The Congressional Budget Office forecasts deficits will average $2 trillion per year over the next decade. Interest payments alone are approaching $1 trillion annually.
Yet the economy keeps growing. GDP expanded at an annual rate of 4.9% in the third quarter. Employers added 336,000 jobs in September, far more than expected. The unemployment rate remains below 4%.
How can this be? The answer lies in a powerful mix of government spending, pandemic-era savings, and a robust labour market. The Biden administration’s infrastructure, chips, and climate bills are pouring billions into the economy. Consumers still have some $500 billion in excess savings from the pandemic. And companies are hiring to meet demand.
But the debt overhang is ominous. “It’s a sugar high,” warns Professor James Harding, a macroeconomist at the London School of Economics. “Once the stimulus fades and savings dwindle, the economy could slow sharply. High debt levels will then amplify the downturn.”
For British workers, the US example offers a cautionary tale. The UK economy has struggled with its own debt burden since the 2008 crisis. Austerity followed, squeezing public services and wages. Today, UK household debt is also high, at 83% of GDP. But unlike the US, Britain’s recovery has been anemic.
“The US is gambling on growth to outrun its debts,” says Sarah Jenkins, our Economy & Labour Reporter. “But for ordinary people, that gamble is a daily reality. I speak to families in Manchester and Leeds who are drowning in credit card bills and payday loans. They are the ones who will pay the price if the illusion shatters.”
Some US economists disagree. They argue that the economy is fundamentally strong. Inflation is easing, wages are rising for the lowest paid, and corporate profits are healthy. The debt, they say, is a sign of confidence: Americans are borrowing because they believe they can repay.
“The US has unique advantages,” says Dr. Mark Zandi of Moody’s Analytics. “The dollar is the world’s reserve currency. The Fed can print money. And the population is growing. These factors make the debt less risky.”
But British economists are not convinced. They point to history: every debt-fueled boom ends in bust. They worry that the US might drag the global economy down with it.
For now, the American consumer remains optimistic. Holiday spending is expected to be strong. But beneath the surface, strain is showing. More households are using credit to cover basic needs. Savings are depleted. And the resumption of student loan payments will squeeze budgets further.
“The US economy is a house of cards,” concludes Professor Nash. “It can stand for a while, but the first gust of wind will bring it down. We can only hope that the wind doesn’t blow too hard.”
Until then, the illusion holds. British economists watch and warn. And ordinary people on both sides of the Atlantic keep borrowing, spending, and hoping that tomorrow will be better.
