Credit card debt is on the rise in America. Approximately one in five Americans rely on credit cards in order to make ends meet. Yet credit cards are intended to be used for convenience rather than a supplement for income. As a result, the national credit card debt is roughly $900 billion. To put that in perspective, the amount of credit card debt, per capita, increased by nearly 1,800 percent between 1980 and 2010.
One reason credit card debt is so high is that people are prone to spend more money with a credit card than with cash. This is because cash requires consumers to use money they’ve already earned, whereas a credit card allows consumers to borrow money they’ve yet to earn.
In some circumstances, consumers using a credit card will spend twice as much money on the same product than if they were to use cash. For example, according to a Boston-based study, researchers found that consumers paying with cash thought $30 was fair price for a Celtics ticket, whereas consumers paying with a credit card thought $60 was fair price for a Celtics ticket—twice the original amount.
Fall of the U.S. dollar
Another reason credit card debt has risen in America is inflation. Unlike eurozone nations, the United States has its own currency, so it just prints off more money to make payments on its debts. While household income has risen 300 percent since 1980, the amount of credit card debt has risen an astounding 1,760 percent.
Reserve currency refers to currency used by many governments and institutions to conduct transactions in the global market. The United States dollar is the most common currency used for international transactions, so it is the world reserve currency. No nation, however, can hold the world reserve currency forever, and the United States is no exception.
A history of world currency shows that nations hold the world reserve currency for an average of 94 years. Spain, for example, held the world reserve currency for 110 years, France 95 years, Britain 105, and the United Stated for 95 years. In short, it’s overdue that the United States dollar loses its reserve currency status.
Credit cards and bank accounts wiped cleaned in recession
One of the only reasons the United States is not yet in a debt crisis like Greece is that it is still the world reserve currency. Nevertheless, as the history of world reserve currencies has shown, the United States dollar won’t maintain its reserve currency status for very much longer. Many financial experts warn that another recession is just around the corner.
In the event of another recession in which the dollar loses its reserve currency status, the accumulation of the United States’ credit card debt will come crashing down. In the absence of a bail-out, big banks will save themselves by using the money of their creditors. And who makes up the majority creditors? The depositors, that’s who. In other words, credit cards and bank accounts will be wiped clean. People will no longer have immediate access to their money or bank accounts, or be able to use their credit cards.
Without the aid of the government or credit card companies, the financial loss will fall on the shoulders of the depositor. The moral of the story? Don’t write a check that your bank can’t cash.
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