Why Americans Are Broke, And Getting Further In Debt

Tyler Durden's picture

Just as the president reminded us yesterday we are not a deadbeat nation, merely borrowing money today to pay the bills of yesterday, so, as the NY Times reports in this all-too-real article, many of the citizens of the US are also living not just paycheck-to-paycheck but short-term-loan-to-short-term-loan. As one debt-consolidation service noted "They've been borrowing just to meet payments on previous loans; it builds on itself." Rings an awfully loud bell eh? (and yes, we know the government's finances are not run like a households - though at some point the check book needs to balance). People in tough 'economic' situations fall into the 'poverty trap', borrowing money at ever higher interest rates in a shell game to keep previous borrowers at bay. The average debt for households earning $20,000 a year or less more than doubled to $26,000 between 2001 and 2010 - as people dig deeper, precisely because they long to escape. As the focus of the article notes, "the belt-tightening was the easy part... the larger problem was cash-flow." Critically, experiments show that 'economic' scarcity by itself - independent of personality or any other factors - fuels a drive to borrow recklessly.


Via NY Times:

The belt-tightening was the easy part. Cancel the cable. Skip the air conditioners. Ration the cellphone, unplug the wireless Internet, cook rice and beans — done, and done. The larger problem for LaKeisha Tuggle, 33, who had lost her public relations job, was cash flow: After her unemployment insurance and savings ran dry, there was none.




The usual explanations for reckless borrowing focus on people’s character, or social norms that promote free spending and instant gratification. But recent research has shown that scarcity by itself is enough to cause this kind of financial self-sabotage.


“When we put people in situations of scarcity in experiments, they get into poverty traps,” said Eldar Shafir, a professor of psychology and public affairs at Princeton. “They borrow at high interest rates that hurt them, in ways they knew to avoid when there was less scarcity.”




People dig deeper precisely because they long to escape.




She recently made an appointment at GreenPath, a national debt-consolidation service, to see whether she could begin to pay down what she has borrowed. “By the time people come to see us, they have no more credit to use,” said Kathryn Moore, a counselor at GreenPath. “They’ve been borrowing just to meet payments on previous loans; it builds on itself.”




In one experiment, participants competed in rounds of the game “Family Feud,” a trivia contest in which each question allows for multiple guesses. One team was “poor,” allotted only 15 seconds per round; another was “rich,” having budgets of nearly a minute per round. Both groups could borrow time against future rounds, but the poor borrowed far more, progressively shrinking their future paychecks while the rich mostly avoided debt.


The research team, which included Sendhil Mullainathan and Dr. Shafir of Princeton, demonstrated that same effect in a series of related experiments. Scarcity by itself — independent of personality or any other factors — fuels a drive to borrow recklessly.




She picked up her purse on a chilly afternoon that winter, drove to a local strip mall and walked into a storefront payday loan office. “As long as you have that bank account, and a check with you, you can qualify,” she said. “So I took a check in, and when I walked out I felt bad. But I looked at the payments and thought, ‘Oh sure, I can do that.’ ”


And she could, just not for very long.


Payday loan operations typically charge 15 to 30 percent interest every two weeks, and many who have used them report slipping behind quickly and being forced to pay off the loan — with yet another loan, often from another payday operation. By the time people are in this deep, they have usually crossed a line and begun to think of borrowing as a necessity rather than a convenience or quick fix, experts said.

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Mr. Fix's picture

But I'm not broke yet, so let the games continue a little bit longer.

Just keep stacking those gold and silver coins,

 keep stacking the ammo, and the food,

 prepare like her life depends on it, because it does.

 This will not end well.

Big Slick's picture

Wait!  Don't petition yet.  I'm still stacking!!

Big Slick's picture

I use that example as the model for the US govt when I explain it to my friends:  A person who must refinance his mortgage every month (thus, at the mercy of interest rate increases) but with a printing press in their basement.  Eventually the scenario crashes and burns.

TerminalDebt's picture

They just increased my credit limit on my credit card. I'm rich, I can spend like Obama now.

trav777's picture

i need to know how to get in on payday lending.

but after banging out the entire population, you don't suppose people might hate me and anyone related to me, would they?

qqqqtrader's picture


start 2 businesses, a payday loan and a liquor store (with lotto of course) next door. You loan it out through one door, and it comes back to ya through the other!

francis_sawyer's picture

I judge the relative proximity to 'rock bottom', as the point where there's nothing left to TRADE for cash...


2 years ago ~ I'd walk into the coin shop & there would be at least a half dozen to one SELLERS of grandma's tea set & grandpa's coin collection to one STACKER...

Lately, that ratio has evened out... Hell ~ I was in there today & there was only one other customer... He was "exchanging" about 10 AGE's for a box full of 10oz silver bars & which amounted to basically a little ove a monster box of a different conferction [I won't get in to the Au/Ag ratio in this conversation]...

My first priority [on this visit], was to procure some more "junk"... No "junk" in inventory... Pretty decent inventory of ASE's [the 2013's were arriving the same afternoon]...

That's my anecdotal story for the day... [Go ahead & junk my comment now just because I rub you the wrong way]...   

FEDbuster's picture

As more people are cash strapped, more people enter the pool of gold and silver sellers.  The unemployed and poor have already sold all their gold and silver.  Now the retirees are bringing in their gold and silver to sell (CD rates under 1% aren't providing enough to live on).  Soon the working lower middle will search for non-used jewelry to sell.  Looking forward to buying Rolexes for scrap prices someday or in trade for 25 lb bag of rice.

francis_sawyer's picture

Rolex's are SHIT [only Jews & 'ewe's' would buy a Rolex]... I'd rather have the fucking rice... [the 'spirit' of what you say, though, I agree with]...


Disclaimer: francis_sawyer, regrettably was a EWE at one point in his life... I traveled extensively & priced the damn things  in places from Rio, to Frankfurt, to Tokyo, to Hong Kong, to Mexico City... Eventually caved& bought one in Cape Town... [this was still in the last year of 'Apartheid' (which was ended in South Africa ~ but still lives on in Israel]...

I thought I was getting deal [which I really WAS, because the Rand to dollar conversion was sweet]... But the motherfucking thing [GMT II Master] always broke down & I ended up paying more to repair it a half dozen times than what I bought it for in the first place... I ended up GIVING it away because it was a POS... Goddamned Hope Diamond...

FEDbuster's picture

So buying Rolexes for scrap might not be such a bad thing?  And you may be right about keeping the rice, if things get that bad.

EnslavethechildrenforBen's picture

How bout we let the Amish run the country for a while. No money, no debt, no cars or telephones. No more fucking criminal government stealing our underwear off of us.

trav777's picture

i have one and it's been pretty solid.  Daydate...there's few jams this can't get you out of.  This watch is the real "world currency."

But I would rather obviously have a Lange or patek, AP...however, you're bribing the police captain with a daydate, calatrava not so much.

francis_sawyer's picture

I'm much happier with a 'PP' [as you say], or an Audemars... I'm just more impressed with their attention to jewelry...


Real [fake] analogy?

In the movie 'Unknown', Liam Neison gives his Rolex to the chick as collateral [which she later gives back]... In the movie 'The Game', Michael Douglas [aka 'Nicholas Van Orton'] gives a PP to a corrupt embassy agent for a passport & a couple of bucks to buy some street tacos...

I'd bet the scenario holds up in real life...

HomeBrewPrepper's picture

I know a guy that does that. He makes more on the payday cash checking then the liquor side. People have such bad credit they cannot open a real bank account because there money would be taken. So they get it cashed there at a high rate, everyone's happy.

DeadFred's picture

If you spend like Obama it means you found a way to get other people to make your monthly payments. Fess up and tell us your secret!

socalbeach's picture

Yes, you can spend like Obama provided you can get the Fed to buy your debt, and refund the interest payments you make.

Ignatius's picture

The American lifestyle (average) has been under attack as a matter of elite policy (off-shoring mfg jobs).  Labor is disempowered now unlike the 70s, hence lower inflation (disinflation of wages are a check).

China's picture

We are still stacking too.

Larry Dallas's picture

I'm still not convinced putting your name on a petition is for anything that its intended for, merely just helping big brother keep a database of prospective dissidents...

Caveat Emptor...

I need more cowbell's picture

I can't be broke, I still have checks left.

10PastMidnight's picture

Sorry thats Benny's line, you'll have to find another.

CrockettAlmanac.com's picture

Irresponsible parent victim of his own stupidity.

trav777's picture

I love how the media can't see color unless it is the right color, then they want to be sure to plaster it as the operative part of the headline.

If it were 40 shootings in Chicago, it'd be "youths" or "teens" and some "random violence."

It's nice how the headline is telling you how to react.

CrockettAlmanac.com's picture

You get a rare +1 from me as you point out a real problem with the media rather than blaming an entire race of people with collectivist disparagement. Perhaps you'll see this as an example of how the problem doesn't lie with any single race or special interest group but in how the system pits those groups against each other and pretends that individuals don't exist.

Bicycle Repairman's picture

"a real problem with the media"

LOL.  The media is complete shit.  Side to side.  Front to back.  Top to bottom.  They are an enemy of the people.

francis_sawyer's picture



Can't you see how the thing we were discussing, at length, the other day, is the exact same thing???... IOW ~ nobody is interesed in getting to the root of the "problem" unless they can manage to get by the PACKAGE LABELS...

When they finally achieve that ~ then [& only then] might we see some progress... Otherwise ~ It's just masturbation... 


If you're failing to make the connection, I'll highlight this:

"Perhaps you'll see this as an example of how the problem doesn't lie with any single race or special interest group but in how the system pits those groups against each other"

The 'SYSTEM', in my example, is controlled & manipulated by the 'special interest group' that it is trying to protect... The only "pitting against" that is done is BY the system AGAINST any public that happens to question the motives of, or challenges the equitable posture of the system itself [as well as the benefits thereto that it has achieved through means of coercion which include bribery, nepotism, theft, & even murder]...


CrockettAlmanac.com's picture


Can't you see how the thing we were discussing, at length, the other day, is the exact same thing???... IOW ~ nobody is interesed in getting to the root of the "problem" unless they can manage to get by the PACKAGE LABELS...


But that is an argument against your constant diatribes against "joos," not a defense of it. Can't you see that?

I have posted hundreds of times in regard to the crimes of Israel and the problems of fiat money. But your insistence on referring to fiat currency as "joobux" detracts from any honest discussion of that subject and makes those who make rational claims against Zionism or fiat money look like part of a crazy cult.

francis_sawyer's picture

Depends on your forum... But you brought up the "honest discussion of the subject" part of it... In my mind, an "HONEST" discussion would INCLUDE the role of the pre-disposition of those who called themselves 'Jews' involved...

The fact that, mostly, the 'steering committee' of those discussion panels exert extraordinary emphasis to EXCLUDE the 'role of Jews' in the discussion is, to me, suspect...

CrockettAlmanac.com's picture

Let's talk about the role of white males in mass murder. Mass murder, after all is a white male problem. Why should be we avoid condemning white males as they are the ones who shoot little children by the dozen?

Oppressed In California's picture

Look at a map with all of the gun murders plotted.  Most points are in major cities. That's something the media will never report either.

trav777's picture

and the people like Crockhead will be JUST FINE with generalizing that this is because all these cities have liberal governments, or "socialism."

They will ignore new england, Portland, Scandinavia, to do so.  ANYTHING but to make an "illegal" mental -third-rail-contacting generalization, no matter how valid it is.

That makes them no better than the dewey-eyed marxists who worship Lennon's "imagine."  Stop believing in fairy tales like human equality.

Does it kinda suck that this situation exists?  Sure.  But reality doesn't NEED your approval to exist.

CrockettAlmanac.com's picture


and the people like Crockhead


I'm white and so are you. So by your own criteria we must be judged alike. Condemn me and you condemn yourself, my white brother.

trav777's picture

you would get a -1 from me for saying something stupid, if I ever gave anyone except Tyler -1s.

You simply CANNOT come here and tell me that I cannot generalize.  If you DO NOT GET that a generalization is NOT an ABSOLUTE STATEMENT ABOUT 100% of members of a class, then you are too stupid to even be speaking and should stop right now.

A large SHARE of the problem lies in one demographic.  Ceding a city/state/nation to that demographic will inevitably result in destruction.  That's just simple fact.

If you can't deal with generalizations, then you're an idiot.  Men are taller than women.  Bears are dangerous.  Elephants are big.  Don't date chicks with tats of poisonous animals.  Falling long distances can kill.  These are all generalizations; that's what our brains DO.  It's an INCREDIBLY valuable skill, this ability we have to classify things.  Engineers can only DREAM that computers could do this simple thing.

The MSM is trying to get you to turn that off and refuse to do it.  It's CONDITIONING, ok?  They want to TELL YOU what is right and wrong and program you to react in their way.  Stop fighting nature.

MisterMousePotato's picture

Yeah, 2013 is gonna be weird all right. Before even two weeks go by, I find myself agreeing with something t777 has to say. In fact, his observation might even be profound. Have to think on it a bit more.

CrockettAlmanac.com's picture


If you can't deal with generalizations, then you're an idiot.


If you can't shoot tight groups don't pretend that spraying and praying makes you the better marksman.

AccreditedEYE's picture

It doesn't matter till it does. A company cuts costs, stops paying for consulting and/or marketing, lays of 8,000 employees, offshores another 5,000 and says because of economic conditions, no raises to employees for the year & be lucky you even have a job (while the CEO & other C-suite execs accepts no such pay freeze). Company stock shoots to the moon but the economic damage that this company has done is catostrophic. It ripples across the public and private sector. This is happeneing all over the U.S. and media looks at stocks higher and tells a hurting public, "we must be winning". No, not really. 

AccreditedEYE's picture

Ya, that sums it up a little more nicely. lol Good to see you still out and about realtick. :)

Son of Loki's picture

Booming businesses in my area:

1. furniture rental stores;

2. Dollar Store;

3. Big Lots;

4. cash for Gold (and pawn shops); and the biggest,

5. payday loan stores.


Signs of the New Paradigm I guess.

salvadordaly's picture

Booming buisnesses in my area:

1. For Sale

2. For Rent

3. Closing "everything must go"

I have not been in any of them, and do not know what they sell, but they are everywhere and growing!

MarkD's picture


Manchester furniture store closing its doors after more than 100 years



But yet there is a 241,000 sqft warehouse being built next door to me that will store the liquor for the state run liqour stores. Go figure.
insanelysane's picture

what happened to the doctor that killed his wife after the home invasion?  that story disappeared quickly, must have been a political donor.

tango's picture

When my dad died this year we had an estate sale.  The Lillian Russel bedroom and dining room (mahogany, 1948, stunning condition) did not receive a single offer.  What we heard repeatedly from the high-end crowd was that furniture was so cheap from foreclosures or attempts to stave off foreclosures that anything could be had at bargain basement prices.

This area (middle TN, affluent) was once the home to countless furniture stores.  They can now be counted on one hand.

Freddie's picture

Yes.  The local furniture stores have dropped like flies.  One had been in business since 1927.  The bedding stores pop up and die quickly.  Who needs a new bed or furniture when you cannot find a job.

Hope and Change.

Argentbilly's picture

We must live in the same town.

hannah's picture

...you forgot 'cash for titles' store. i find it hard to believe these people own their cars...? but they are displacing the liqour stores...?