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.