US & World

How does decline in consumer debt affect American economy?


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Americans reduced their debt by more than $21 billion in July. The Federal Reserve reports that this is the largest month-to-month decline in consumer debt in 66 years.

Christopher Thornberg, principal at Beacon Economics, told KPCC’s Larry Mantle that paying down debts and waiting to make major purchases indicates a welcome trend toward restraint and self-discipline.

Christopher Thornberg: "For the last three or four years I’ve been saying that the American consumer was like vastly overweight, and I think most economists agree with me. Now that they are losing weight suddenly we are all worried about what the health implications are."

Some economists are worried, Thornberg said, because about 70 percent of the domestic economy depends on consumer spending. He maintains that the old American habit of spending beyond our means is ultimately bad for individual households and for the economy.