U.S. households actually reduced debt, 0.8 percent, in the third quarter, which is the first time that has ever happened in more than 50 years the Federal Reserve has been clocking that figure.
Now maybe we find out if no good deeds really do go unpunished. The statistical Seismic tick is getting increasingly many analysts debating whether the economy is headed into a period of deflation. That’s when no one buys anything while waiting for prices to drop further in order to stretch thin resources further.
That’s really bad news in an economy that has counted on our borrowing and spending to drive two-thirds of the economy.
At the kitchen table level, we already know deflation, which basically is postponing buying anything we don’t absolutely need until the price comes down or we really have the money after we’ve covered more pressing needs.
At our house, for example, we’re still looking at ads for the new flat screen we once planned to buy for Christmas to replace our conked-out Zenith. But we probably won’t buy it unless prices drop even lower than on Black Friday sales after Thanksgiving. Even then, we might cut out more of our cable service instead, which would resolve the TV question and save even more money.
Economists know we all should have been living within our collective means long ago. Now some worry that too much newly found fiscal virtue may actually prolong the pain we are in now. We don’t buy. Merchants slash prices. Manufacturers cut payroll to lower costs. Competitors and suppliers cut too. And suddenly, our paychecks are lost or smaller too.
No one yet knows why we collectively swore off borrowing last quarter. There is some debate whether lenders forced us by clamping down hard or that most of us have decided en masse to not spend any more than absolutely necessary until we know how things work out. But what do we want the answer to be?