the fed measure that allowed people to avoid paying on their student loans comes to an end soon. if millions of people suddenly have to start paying a few hundred bucks each month on debts, what will be the effect on consumer spending? and how much will this effect gdp?
just my opinion, but i think we will see some big hits to consumption and gdp in the coming months. i don't know if this has been fully reflected in stock prices.
Wonderful questions bear!
We have a total student US loan debt balance of 1.7 trillion. The total US GDP in dollars is around 22.6 trillion. per year. Even if the entire student loan balance was paid in 1 year, the impact would be negligible. Assuming the debt is covered over 10 years or so, it's likely to barely register.
As we approach mid december, the forecast for Q4 GDP is about 8.7%.
IS gdp measured in today's $ or is it corrected for inflation?
That is an extremely complicated question and I don't know that I can do it justice in a paragraph or 2.
But there is Nominal GDP and Real GDP.
Real GDP, which is the number you're most likely used to, tracks the total value of goods and services using constant prices adjusted for inflation.
Nominal GDP does not adjust for inflation.
The two can be compared to see the impact of inflation on real purchasing power.
There are lots of great articles on the subect if you are interested.
In any event, I guess the simple answer to your question is. Yes, Real GDP is adjusted for inflation.
YoY, GDP has almost always been on the increase. Even during the 70s and 80s, when some people had tight budgets. As well as 08/09.
People are still going to buy what they need and want. Even on a strict budget.
What has evolved since then, is revolving credit, and to some degree, paycheck loans, et.al. So I'm wondering how much consumer credit is going to rise, given that there will be quite a few who will have to resort to the credit card to pay bills. Especially when the goverment check finally runs out. And it will. Ultimately, this will reduce consumer spending, maybe bringing on the drop in GDP.
I agree Mark.
The reaction most likely will be , can I say , a macro economic event in the sense of time - and not necessarily with much effect.
More strategic than tactical but buffered by the availabilty of credit - nothing to see here.
John