Posted On: Monday - February 6th 2017 8:44AM MST
In Topics:   Global Financial Stupidity
(Continued from here.)
Part 6 was just updated to indicate that THIS ONE (Part 7) is to be about consumer debt and Part 8 about the problems around the rest of the world.
Of course, there isn't enough room in one post to go over the details of any of this, but these "primers" are just that, an introduction to the problem. While discussing the ways that different obligations, sometimes in the form of paper debt "instruments", and other times just promises on a contract or in pension plan brochure, are interrelated, in Part 6, a big item was skipped. That is consumer debt.
Americans, on average, have quite a lot of debt on their own, not related to any of the stuff big government is up to. One could say that their governments are just going to do what Americans let them, but I believe that, especially our Feral Gov't, they are out of our control now anyway. It is probably the case that Americans don't have enough worry about the consequences of governments having sky-high debt and obligations due to the fact that it's just a part of everyday life for most families also in this day and age.
The biggies are mortgage debt and other loans against people's biggest asset, their homes, credit-card debt, college loans, and auto loans. If you went back to the early, and even mid 1970's, you would find that only the first of these 4 was any kind of significant number. Yes, you'd have to go back quite far to get to the time when people bought houses without payments, but the money wasn't lent out so readily, before the US Gov't got it's dirty hands in this business.
Car loans have been around 2nd longest, but 4-year payment plans were the highest you'd get until just a few decades back. Now, people are getting as long as 7-year terms for pay-back! (It sounds worse in months - only an 84 month plan! - the coupon book - do they still have those? - would be a half-inch thick - kinda depressing.) This business, as of late, the last 5 years, has become the new sub-prime business, as they'll come up with any plan that has payments small enough for the buyer to squeak by on. It keeps the cars moving off the lots, and the repo business has gotten a lot safer lately, with the new technology to, say, disable the vehicle in the parking lot while the repo man knows the
Credit cards have been around for 50 years or more, but they weren't something that average Americans depended on regularly for their financial dealings that far back. I can remember getting one just to take care of buying items over the phone, but really only for that reason (I'm very glad to have grown up in a conservative family). Debit cards took care of the problem of buying things remotely, so that's not the reason most people have credit cards now. People want to spend to the max and feel they are doing OK if all the paychecks in the family cover the payments.
Lastly, the student loan debt is orders of magnitude greater (even in real dollars) than 3 decades ago. PeakStupidity featured a short post about this already, but there is much to say about this, and we have a particularly lot of experience in the University environment.
Again, this is just intro. and not very entertaining even as I read over it myself, but the detail posts will be more interesting, I promise. The large point here is that the numbers are very HIGH compared to the recent past, even in real dollar terms, of all this consumer debt. At the same time, the number of jobs that could enable a large portion of American society to live a middle class lifestyle and keep covering it's debt is much LOWER and decreasing.
As mentioned in my examples of the interrelationship of money/debt over the economy, this consumer debt, much of which is totally unpayable, is held as assets by what-have-you, other people's pension plans, your 401K account, etc. There's no tightening up on one part of this mess without causing pain everywhere else.
Next up, and the last of the "primers", will be a short discussion about the state of the world compared to America's debt problems.