Guest Post by Peter Reagan

In our modern day and age of economics, the health of the economy is usually measured by consumption. How much is being spent. So, governments and large companies look at measures such as gross domestic product (GDP) as the single most important metric to track.

GDP is a measure of how much money is spent – that’s all.

It doesn’t track who is spending, or where they got the money. Was it from their paychecks? From savings? From borrowing?

Economists don’t care care. After all, to paraphrase famous investor Ray Dalio, “one person’s spending is another person’s income.”

Even if that spending comes from borrowing. From debt.

Where does the money come from?

Some portion of spending in an economy always comes from debt. There have always been people, businesses, and governments who have borrowed money (and no one borrows money to just sit on it, do they?)

What is relatively unique over the last century or so, though, is that the entire economy of nearly every country in the world is based on debt. It’s just a natural by-product (or intended “feature,” depending on if you benefit from it) of using a fiat monetary supply and fractional reserve banking (I’ve talked about fractional reserve banking before, if you need more information about that).

And because our economy is largely driven by debt, it’s a crucial number to watch. Because what happens with debt, especially for everyday American household spending, has a massive effect on the economy.

It’s all interconnected.

And that’s why today’s struggle is alarming…

Where the first signs are showing up

If there are “sectors” of the economy that are having the most difficult time right now, it is Gen Z and Millenials.

Sure, half or more of Gen Z is still in school, but a big portion of that generation are already out of school, including having bachelors and masters degrees, and Millenials are nearly all out of school and working or looking for work.

These are the future long-term workers in our economy. These are the people who older generations need to buy houses and buy food and spend money to keep the economy going so that those older generations can retire on their investment returns.

And these young people are already showing signs that the economy is not going their way.

Going back to our discussion of borrowing, FOXBusiness reported on the latest New York Federal Reserve bank report:

The report showed that nearly 10% of credit card balances held by Americans aged 18-29 became 90 or more days overdue in the second quarter.

New York Fed researchers said credit card delinquency rates for Americans under 40 have been “unusually elevated,” adding they are keeping a “close eye” on the trend. 

These are the workers just starting out – with young children still at home – who have the drive to provide for their families.

And nearly one in every ten can’t make their basic credit card payments each month.

Whether they racked up debt on smart purchases or on wasteful spending, it doesn’t matter. Right now they are struggling.

Living on the edge

To make matters worse, an alarming portion of Gen Z have absolutely no emergency fund. StudyFinds puts it this way:

A new survey from Credit One Bank reveals that 62% of Gen Z have no emergency savings at all, nearly double the rate of baby boomers.

In other words, if they have a flat tire, if they have a pipe burst in their home (if they’ve even been able to buy a house), if they have to go to the emergency room…

They’ll need to charge the emergency on a credit card.

So, they are in a position in which they need to be able to borrow. But with nearly 10% of them unable to make minimum payments, it’s getting harder and harder for them to find credit when they need it.

Household debt reaches new record

According to the New York Fed,

Total household debt increased by $185 billion to hit $18.39 trillion in the second quarter, according to the latest Quarterly Report on Household Debt and Credit.

Considering that there are, according to the U.S. Census Bureau, 342,347,522 people in America at the time of this writing, that means that just in the second quarter of 2025, Americans borrowed an additional $540.37 per person (kids too).

At that rate, every man, woman, and child in the U.S. will rack up an additional $2,000 of debt. That’s not including the massive federal debt hanging over our heads…

But maybe you’ve read this far, and you’re asking, “So what? I pay my bills. I don’t need to borrow. Why should I care if Americans are borrowing like crazy?”

It’s a fair question, and the answer has to do with how much of the economy is household spending. Statista gives us that answer:

personal consumption expenditure, which includes consumer spending on goods and services, accounts for more than two thirds of U.S. GDP. 

The exact number varies by year, but every year, consumer spending makes up somewhere between 60%-80% of total economic activity!

The bill is coming due

If American households don’t have money to spend and if they can’t borrow money, then, they won’t be spending money.

And that means that they won’t be spending, either. Remember, one person’s spending is another person’s income. In our debt-driven economy, that means a contraction in spending has a very real negative effect on everyone in that economy.

Downturns in consumer spending, driven by exploding debt and tightening credit, are a major recession warning…

So, what should you do?

My advice is to diversify into stores of wealth, foundational building blocks of your financial house, that there is a demand for in every economy. That inherent value means that you have something that doesn’t become worthless no matter if the rest of the economy is tanking (or doing great).

Having stores of wealth with that intrinsic value means that you have options, and you have stability in your life even when others are dealing with economic chaos. You can start your education and due diligence in that area starting with our comparison of inflation-resistant investments.

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