Debt Load Makes Americans Vulnerable

[UpInArms]

http://news.yahoo.com/news?tmpl=story&cid=519&e=19&u=/ap/20050828/ap_on_re_us/debt_doomsday

NEW YORK - Buy now, pay later: It's been the mantra of American consumers for decades. The results are obvious in the ballooning balances on credit cards and mortgage loans, and in the mushrooming U.S. trade deficit, which reflects the nation's nearly insatiable appetite for cheap, imported goods.

Low interest rates, especially since the end of the 2001 recession, have fed the debt beast at home, allowing American consumers to accumulate nearly $11 trillion in debt as they buy more homes, more cars, more clothes, more dinners out. At the same time, foreign investment in the United States is helping to keep the dollar strong, which holds down prices on those imports that Americans covet.

But what would happen if interest rates suddenly weren't so benign, or if foreign governments, corporations and individuals stopped investing so heavily in America? Some analysts fear such actions could trigger doomsday scenarios in which the bills come due and Americans can't pay, with devastating consequences for the entire economy.

<snip>

Outstanding balances on credit cards have risen to more than $800 billion, or some $7,200 per U.S. household. That's the equivalent of three plasma TVs, or 24 iPod digital music players, or more than 1,200 Big Mac meals.

It's more than double the indebtedness of a decade ago — and it doesn't include an additional $1.3 trillion in debt for cars, appliances and personal loans.

...more...

[NYC]

1. Yes, but nowhere near the cost of one uninsured surgery.

...Outstanding balances on credit cards have risen to more than $800 billion, or some $7,200 per U.S. household. That's the equivalent of three plasma TVs, or 24 iPod digital music players, or more than 1,200 Big Mac meals...

How much debt is for plasma TVs, and how much is for medical care?

[justinsb]

2. Don't forget

about 30,000 per person (not per household) in Federal debt.

[StClone]

3. Misleading saying raising gas prices are still a bargain

The American Economy is built on cheap labor, inexpensive energy and low food prices. Just as outsourcing and slave labor has taken away part of funds available for purchasing the energy companies (ENRON, BushCo) have found ways to squeeze out wealth from the lower classes. I would argue since less wealth is being produced in U.S. the Top Cons are left to steal or find money schemes that involve inequities in value to produce wealth for them with less net wealth being produced in the U.S.

[arikara]

4. Thats a good article

I also read on a thread here a week or 2 ago that come October as soon as your new repressive bankruptcy laws go into effect that the credit card companies are going to double the minimum payment. It was suggested that anyone with a lot of credit card debt go bankrupt now without delay.

[Skittles]

5. why are so many Americans so greedy, so materialistic?

and I have never, ever understood how anyone could actually enjoy shopping - to me it is a chore

[SoCalDem]

6. AMEN.. I HATE shopping

I go ONLY when I absolutely have to :)

[Iowa]

7. Yep...

And it isn't just shopping for stuff. Most of my peers (including family) can't get together without shelling out several hundred bucks for expensive activities, whether it's renting a houseboat, golfing, or meeting at an expensive resort. Just getting together with people isn't good enough. Everyone must be "entertained" lavishly at all times.

I just got back from taking my daughter to college several hours from home. Almost every student there has their own car, cell phone, internet connection, computer, air conditioned dorm-room, cable TV in the room, etc. And this is a state university. Many of these kids will end up in $22,000 a year jobs - if they're lucky. My daughter has no car, no cell phone, no cable TV, and a job. Somehow she has managed to survive the experience.

Materialism is a kind of slavery. It's dangerous stuff. My wife and I rejected it years ago, and with very little effort we now own our home free and clear, have no debt of any kind, and have enough money (just money left over that we didn't spend) to cover our basic living expenses for the rest of our lives. We're in our early 50s, and we never earned more than $65,000/year between us. Most of our peers are still dependent upon their corporate jobs with no end in sight. And many do not plan to retire - EVER.

[Skittles]

9. I absolutely agree with you

I grew up with little and never developed a taste for "stuff" - for example I have two purses, 5 pairs of shoes - and that's all I NEED for chrissakes.

I think there must be a terrible void in people who get their jollies aquiring STUFF.

[1932]

10. According to the book The Health of Nations, polarization of wealth

is a big driver of unneccessary consumption.

If I remember correctly, goods that you don't need to survive are called "postition" goods.

Positional goods are often very expensive and only available to a few people when they come out initially. They become associate with wealth and people feel they need them as a sign that they're higher up on the income ladder than they really are.

In a country like Sweden where there's less polarization of wealth, consumer goods don't carry that cache of being a sign of wealth. When some new good comes out, people take it or leave, depending on whether it has utility (and utility isn't measured by whether it makes you look rich to other people).

So, bottom line, it's the extreme polarization of wealth the drives people to make bad choices about consumption and the levels of debt they're willing to take on.

[Joebert]

12. I am seek and destroy when I go to the store.

I know exactly what I'm buying, get it, and get out.

The last impulse purchase was a bag of chocolate chip cookies. I know I shouldn't have done it, but it wasn't a TV. :-)


But back on your question...

Why are so many of our fellow citizens so celebrity obsessed?

When did brand names get SO important? There are TV commercials here now where they talk about the brand of floors and landscaping in a new housing area. Who is tracking brands of landscaper? Come on people.

And I agree, between parking, crowds, noise and all that fun, I see the mall once a year, maybe twice.

You know, it's funny. I work so much, I don't get out much. I went to sign up for night classes this semester at the local community college, and every kid was wearing the same clothes, babbling on a phone, and in their own car. That was a shock for me.

[Skittles]

14. I just dread going out

it's not just people looking the same, the g.d. strip malls are sporting the same stores all over the country. UGH.

[Joebert]

15. That is true

But strangely enough, the #1 new buildings built in numbers here are...

BANKS!

The loan business must be so good, they can't stop building bank branches.

Nobody I know saves much money, or takes decent advantage of 401ks, or even company stock purchases. But by God, they have campers, and the latest video game player every time it comes out.

[Skittles]

16. LOL I don't own a camper or a single video game

but I have a 401K and savings! :D

[VegasWolf]

8. People said that the stock market couldn't crash either, history has

never been forgiving of fools!!!

[cliss]

11. Something has changed.....

The bankruptcy laws changed recently. Before, people could spend, spend, and Ditch the Debt.

Now, they're stuck with the debt. Even unpaid medical bills, from what I understand.

I've also read they're planning to re-open Debtor's Prisons like they had in the 1800's, but that could be just a rumour.

Anyone who has a handle on their spending habits is miles ahead.

[Joebert]

13. If you ever find that article or something similar from a reputable source

please post it.

I have to assume that is a wild rumor.

BUT, with bankruptcy protection gone, medical support never having arrived, people won't go to prison, they'll probably just die.

I wonder what suicide rates will look like when the minimum payments change, and when the interest only loans start turning into interest+principal. It's going to be a mess.

[rman]

17. the new backruptcy law is hardly a secret...

http://www.huffingtonpost.com/nicholas-von-hoffman/indentured-servitude_b_6170.html

Kevin and Linda Moore of Boise, Idaho, declared bankruptcy recently. They were required to list each asset and its value. They put down $5 for the toaster and $10 for the cat.

The Moores are among hundreds of thousands hurrying to declare bankruptcy before the new federal bankruptcy law goes into effect. The new law makes it very hard to get debts wiped out. Instead of a wipe-out, you get reorganized and have to pay so much a month. How many months would the Moores have to pay under the new dispensation? At, let’s say, $30 a month that would be - - Oh, don’t forget to calculate the interest.

In addition to not getting the debts wiped out, a bankrupt must attend re-education classes in which the financial offender is taught how to manage his or her money correctly. Take a family like the Moores. If one of its members comes down with a ruptured appendix, the sickly one will be cautioned not to go running to a hospital which they cannot afford but to go to Rite-Aid, there to buy a box of tissues so as to clean up the mess at home. With a little planning and ingenuity people do not have to live beyond their means.

The social benefits of tens of millions in perpetual debt are enormous. Debt ridden persons cannot afford to tell their bosses they can take this job and shove it. Debt ridden persons dare not go out on strike or honor a picket line. They are better than obedient. They are conveniently servile.

Mass indebtedness promotes the status quo and protects against change. All that and we make money off the interest, too.

---

Tighter Bankruptcy Law Favored
Bills Making It Harder to Erase Debt Set to Clear Congress
By Kathleen Day
Washington Post Staff Writer
Friday, February 11, 2005; Page A05
http://www.washingtonpost.com/wp-dyn/articles/A15399-2005Feb10.html

=======================================

Monthly payments used to be 5% of the debt balance. It was lowered to 2% to make it more attractive for consumers to use credit cards.
More then 100 million Americans have a credit card debt and use credit cards "to make ends meet". The average US family has 8 credit cards and $8000 debt.

source:
PBS Frontline: Secret history of the credit card
November 23, 2004
http://www.pbs.org/wgbh/pages/frontline/shows/credit/

---

"The House of Representatives approves an overhaul of the nation's bankruptcy laws Wednesday, in a vote of 302 to 126.
The bill, which passed in the Senate last month, will make it more difficult to get rid of debts by filing for bankruptcy, forcing tens of thousand of people to work out repayment plans instead.
President Bush is expected to sign the bill, which opponents say will hurt the economically vulnerable."

source:
NPR
Congress Overhauls Bankruptcy Laws
by Brian Naylor
April 14, 2005
http://www.npr.org/templates/story/story.php?storyId=4600645

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"Within the next month, Bank of America, MBNA and Citigroup will raise minimum monthly payments on their cards from 2 percent of the balance to up to 4 percent, not including interest. Other card issuers are expected to make similar changes by the end of the year."

"On the good side of that, they will get out of debt faster, but on the down side, it's gonna be a squeeze."

source:
Yahoo News
New Credit Card Payment Requirements Bring Good, Bad News
July 18, 2005
http://news.yahoo.com/news?tmpl=story&cid=401&e=2&u=/wyff/20050718/lo_wyff/2831815