Kenichi Ohmae once explained American's love of debt like this: Japanese save to spend, while Americans force themselves to save by accumulating debt which must then be paid off. Kenichi identified that Americans tend to accumulate debt by buying expensive houses and cars and then are forced to suppress consumption in order to make payments.
This seems to have changed somewhat with the advent of interest only mortgages but is still fundamentally true.
So consumer debt forces future savings. But could high consumer debt levels actually be a competitive advantage? I think it could be – and here’s how.
High levels of personal credit allow consumers not to postpone purchases. If Apple comes out with a new high end IPOD for example there is no need for consumers to wait to purchase it. They slap the purchase on their credit card and worry about paying for it later. This in turn means that new products that are sold in the US break-even quickly and that the US is the largest most advanced consumer market in the world. Companies launching products in the US have a competitive advantage.
Posted by Anthony at August 2, 2005 09:30 AM