Personal and Corporate Debt—When Will We Learn the Lessons of History?

Judging from current financial opinion, perhaps never. Debt is

the driving force of America’s consumer society. But at what price to human

values?

Values? What would possibly be the human values

connected to excessive debt?

For starters, wage growth, a

rebirth of the middle class, the ability in these troubled times to save for a

home, educate our children, buy a new sofa and escape the slavery of a

credit-card lifestyle.

That’s it folks, we’ve become

slaves to credit. Slavery is defined as the state of being under the control

of another person, as well as work done under harsh conditions for

little or no pay.

In America alone, debt connected to

credit-cards, auto and college loans surpass $1 trillion in each

category.

In today’s gig economy, with workers being increasingly

hired as independent contractors, a living wage, paid holidays, health

insurance, profit-sharing, union representation and pension plans are all

off-the-table. What is that, if not financially engineered slavery?

The average American now has

about $38,000 in personal debt, without counting home mortgages. On a family

basis, The average American household carries $137,063 in debt, according to

the Federal Reserve's latest numbers and I’m not all that sure I’d trust the

Fed numbers. If we factored in our blossoming personal hunk of the national

debt, each and every citizen (including children) owes an additional $67,000.

Running the numbers, if you live

alone, that’s $105,000. If you happen to be a family of four, you look over $400

thousand straight in the eye. Remember, those figures do not include a

home mortgage.

That’s a laugh for the billionaire class, which is probably

why they don’t give a damn at the moment. It takes Jeff Bezos (Amazon) about 8

minutes to earn that much.

For the rest of us who do care, here are at least four

massive bubbles out there on the verge of bursting.

1)  Banks

are loaning massive amounts to businesses already overloaded with debt, then

passing those loans on in leveraged securities, lying to investors about their underwriting

value just as they did with the 2008 home-loan debacle. That ‘worry’ amounts to

over $9 trillion and growing. Sound like 2007?

2)  As

of 2018, a total of 44.2 million borrowers now owe a total of over $1.5 trillion

in student debt. Did I earlier say a trillion? Oh my, that was old news.

3)  Over

100 million Americans have auto loans, totaling $1.2 trillion. That’s

very nearly one in three Americans (including children) and the average

amount borrowed for a new car was $31,099. Wow. Whatever happened to the decent

used car? The average loan is for roughly 69 months and some stretch to

85 months or longer. You certainly own a very used car by that time.

4)  That

$1 trillion in credit card debt carries a little over 17% interest. That, in

times when banks can borrow money from the Fed at 2.5%. When banks bump their

margin by seven times, who needs a Mafia?

So, what’s the problem, other than the obvious?

The problem is interest rates,

which are just climbing out of the record lows that followed the 2008

depression. Unlike 2008, we have nowhere to run to juice the banks for

another roll of their Vegas-style roulette wheel.

It’s gong to have to come from

somewhere else and you and I both know that means us.

Let’s face facts. In 2008 we should have federalized the

banks instead of bailing them out for more shenanigans. We have a vehicle for

that—the Federal Deposit Insurance Corporation (FDIC). But Barack Obama was too

green, the crisis too massive and the banking community too powerful to allow

that to happen.

Instead, we sent the same crooks

who got us into the mess to get us back out. And get us back out they did,

while millions of Americans lost their homes.

Investors came out okay. The

investor community always comes out okay, although there was a time in

America when, if you made a bad investment, you lost your shirt.

This time

around, only ordinary Americans lost their shirts and we sank deeper

into a credit-driven economy buying them back.

So, banks and investment firms are on top (as always) and the ordinary man

(or woman) on the street is shirtless.

All those trillions of dollars in

consumer debt are at risk of default. All it takes are even small jumps

in interest rates and then the fun begins.

College, auto and business loans,

along with credit-card and a certain amount of home mortgages all go down the

tubes. 60% of Americans couldn’t raise a thousand dollars in an emergency.

They’re pushed to their absolute limit and a medical emergency or job loss is

unsustainable.

The history is there to be seen.

We fail to see it.

As philosopher George Santayana warned

us, "Those who cannot remember the past are condemned to repeat

it."

More in my next blog on why there’s no fear at the top over

the next coming downturn.