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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Tue, 01/15/2013 - 14:28 | 3154641 trav777
trav777's picture

everyone has a "we buy gold" sign...see those all over the place.

Ripping people off has found another conduit, I guess.

Tue, 01/15/2013 - 11:45 | 3154056 Cursive
Cursive's picture

Easy money corrupts.

ETA: All of LaKeisha's problems would be solved if she could just get a primary broker/dealer license. If she were the Bank of LaKeisha, the Fed would buy her debt with FRN's and she could buy whatever she wanted ad infinitum. Rinse and repeat....

Tue, 01/15/2013 - 11:49 | 3154083 AccreditedEYE
AccreditedEYE's picture

LOL

Tue, 01/15/2013 - 11:50 | 3154095 Frozen IcQb
Frozen IcQb's picture

Who's LaKeisha? I have to read something else than ZH!!

Tue, 01/15/2013 - 12:00 | 3154130 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

LaKeisha voted 98% for Barack Obama.  That is who she is.

Tue, 01/15/2013 - 12:24 | 3154224 Arbysauce
Arbysauce's picture

Perfect. Is she TBTF? Remember to eat your twinkies daily. Oh wait...

Tue, 01/15/2013 - 17:13 | 3155419 BooMushroom
BooMushroom's picture

Depends on what the "F" stands for...

Tue, 01/15/2013 - 11:44 | 3154058 Rainman
Rainman's picture

Even WaPo , USSA's version of Pravda, ran a piece yesterday on the pre-retirement withdrawls and loans from 401-ks. That makes two liberal rags wandering off the Oblameo 'recovery' path.

http://www.washingtonpost.com/business/economy/401k-breaches-undermining-retirement-security-for-millions/2013/01/14/f54a0e90-5e70-11e2-8acb-ab5cb77e95c8_story.html?hpid=z1

Tue, 01/15/2013 - 11:48 | 3154076 duo
duo's picture

that was easy.  Pay 10% + 28% in 2012 and not have your money trapped as GS siphons it away with HFT, or wait and pay 33% + the 3.9% Obamacare tax.  It's about a wash.  Taxes are not going lower, ever.

Tue, 01/15/2013 - 12:35 | 3154266 trav777
trav777's picture

Nein.

You actually think they are going to see the "solution" the same as YOU do?  ROTFL...are you drunk?

They will solve this will "just shows how we need more tax-the-rich."  Just as every shooting is why we "need to ban assault rifles," even if the shooting wasn't done with one.

The problem is "Busch" still, of course.  It's just too hard to solve the mess he made.

Tue, 01/15/2013 - 11:50 | 3154061 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

USA trillions in debt, more so every day, at an accelerating pace.

US citizens: Monkey see, monkey do.

If your Gubmint is deep in the hole and broke, you may as well be too, cuz your Gubmint will soon be coming for whatever you haven't spent, be it PMs, savings, 401k, future earnings, your estate, etc.  Confiscate, tax, double-tax, repatriate, devalue, ......

Tue, 01/15/2013 - 11:44 | 3154063 buzzsaw99
buzzsaw99's picture

Pawn shops are the best indicator imo. Winter usually sees a lot of tools but they are stacked to the ceiling this year. I see a bunch of big screen televisions too. Pawn shops and ebay don't lie.

Tue, 01/15/2013 - 13:26 | 3154419 MachoMan
MachoMan's picture

Kind of...  they're also void of any firearms, ammo, or mags...

Tue, 01/15/2013 - 14:01 | 3154540 imbrbing
imbrbing's picture

The local thrift store parking lot here looks like a walmart parking lot now. 5 yrears ago mostly empty and now is packed all the time.

Those 50 cent used socks and shirts are selling like hotcakes.

Tue, 01/15/2013 - 14:26 | 3154635 Texas Ginslinger
Texas Ginslinger's picture

I have bought almost all of my shirts, pants and coats from 2nd hand stores for many years.

I only buy new or seldom used items. 

Pay pennies on the dollar.

 

Tue, 01/15/2013 - 14:29 | 3154645 trav777
trav777's picture

do they sell Loro Piana cashmere?

Tue, 01/15/2013 - 14:52 | 3154717 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

Trav, there are 26 listings for Loro Piana on Craigslist in the US.   Here is one:

http://chicago.craigslist.org/chc/clo/3531316706.html

Tue, 01/15/2013 - 16:03 | 3155019 Freddie
Freddie's picture

Big screen TVs?   They must offer people peanuts for TVs.  A totaly commodity. The new iTv should be out soon as well (sarc).

F TV and Hoolywood - they all champion hope and change.

Tue, 01/15/2013 - 11:45 | 3154065 Downtoolong
Downtoolong's picture

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

Like cows being milked daily. And we know what happens to them once they can't produce milk anymore.

"No Debt, No Sweat, No Banks."

Tue, 01/15/2013 - 11:45 | 3154067 Investor Wizard
Investor Wizard's picture

The real problem is trying to make change for those trillion dollar coins

Tue, 01/15/2013 - 11:47 | 3154074 Big Slick
Big Slick's picture

How do we stay in business at the Change Bank?  Volume.

Tue, 01/15/2013 - 12:13 | 3154179 CrimsonAvenger
CrimsonAvenger's picture

"Somebody better go back and get a shitload of dimes."

- Blazing Saddles

Tue, 01/15/2013 - 11:45 | 3154069 Sudden Debt
Sudden Debt's picture

I recently saw this movie where people where wearing this wristbands that said how long they could still live.

Nobody got older than 30. But you could buy and sell time.

The poor sold their time and the rich bought their time so they could live forever.

In the movie, nobody had more time than 24 hours. They first sold their time and they bought back time with their daily salary.

Those who lost their job...

Those who where broke...

no money... no time

It was a pretty good movie that actually went pretty deep.

Tue, 01/15/2013 - 11:50 | 3154091 Cursive
Cursive's picture

@Sudden Debt

Interesting concept that was a complete rip-off of "Logan's Run." The production values sucked (think made-for-TV movie or direct-to-DVD) and having to watch Justin Timberlake for more than 3 minutes (parental obligation: movie time with dad) was painful.

Tue, 01/15/2013 - 12:03 | 3154150 Sudden Debt
Sudden Debt's picture

Logan's run was about your gem that turned red and you had to be killed to be reborn.

The one I saw was a movie about time trading and the power the elite had over the distribution of time.

Okay, Logan's war was good because it's a classic but than you can also call the Matrix a rippoff of Logan's war because they both handle the illusion of the world you live in.

 

 

Tue, 01/15/2013 - 12:18 | 3154200 Cursive
Cursive's picture

@Sudden Debt

True.  And Logan's Run is a just another adaptation of the Homerian/Odyssean story.  Sorry, I had to bitch mainly because the film, "In Time," could have been pretty good, it just wasn't a quality production.  Half assed script, half assed directing and half assed acting.  Amanda Seyfried was good, though.

Tue, 01/15/2013 - 13:24 | 3154416 Sudden Debt
Sudden Debt's picture

I love talking about movies :)

I watched while playing a game on my iPad so the real details might have passed me and if it where that good, I would have put my pad aside.

Tue, 01/15/2013 - 13:30 | 3154439 MachoMan
MachoMan's picture

speaking of movies, the time traveling hitmen in Looper get paid in silver and gold... 

Tue, 01/15/2013 - 14:00 | 3154534 hannah
hannah's picture

the 'only' reason they got paid in gold was so bruce could use it as a flac jacket later in the movie...! taping fiat to his back wouldnt have worked to well....

Tue, 01/15/2013 - 11:55 | 3154116 caimen garou
caimen garou's picture

" In Time" i think, should slap wrist bands like that on some congressmen& women!

Tue, 01/15/2013 - 11:47 | 3154070 Dr. Engali
Dr. Engali's picture

 

“They’ve been borrowing just to meet payments on previous loans; it builds on itself.”

Correct me if I'm wrong but isn't that the same thing that every western country is doing right now?

Tue, 01/15/2013 - 12:00 | 3154127 ItchyBeard
ItchyBeard's picture

But but we've been told that macroeconomics and microeconomics have different set of rules . . .

Tue, 01/15/2013 - 11:48 | 3154072 CaptainSpaulding
CaptainSpaulding's picture

I am officially broke. All my savings are belongs to Toyota. Brake jobs and transmission issuues are expensive you know

Tue, 01/15/2013 - 11:50 | 3154086 Big Slick
Big Slick's picture

Do your own brakes.  It's one of the easier car repairs that a man can still do in this pussified society.  Google it.

I can't believe there are people who pay for oil changes and still call themselves 'men'

Tue, 01/15/2013 - 11:54 | 3154109 CaptainSpaulding
CaptainSpaulding's picture

Yes, But they change the brake fluid and do it right. They charge good money, But if there is a problem, Im covered

Tue, 01/15/2013 - 12:01 | 3154137 Big Slick
Big Slick's picture

understood.  Do your oil, though.  Please?

Tue, 01/15/2013 - 14:10 | 3154575 Argentbilly
Argentbilly's picture

Right, I use Amsoil and change each car oils once a year. I let it drain for about three hours and rock the engine to get more used oil out. Since I don't have an impulse to change oil every 3/3000 I save 6 oil changes a year $300 savings on two cars. 

Tue, 01/15/2013 - 13:03 | 3154365 pursueliberty
pursueliberty's picture

When did brake fluid start going bad in non tracked cars?

I've got a truck with 300k on the original brake fluid, it still stops fine.  Worse case scenario a a caliper needs to be replaced and you open the system for a second.  They make one man bleeders now that allow you to do it yourself, I get my wife or a friend to pump the pedal while I bleed them.

 

Tue, 01/15/2013 - 13:59 | 3154528 CaptainSpaulding
CaptainSpaulding's picture

I always have the brake fluid flushed after getting new brakes installed.  But thats just me. It cant hurt

Tue, 01/15/2013 - 14:51 | 3154737 NoDebt
NoDebt's picture

It can hurt your wallet.

The only thing that causes brake fluid to "fail" is that it is hygroscopic (absorbs moisture).  That's why the whole system is sealed, especially the cap/lid on the master cylinder.  When it absorbs moisture it lowers the fluid's boiling point.  If you like to hammer on your brakes really hard and often you can, in extreme circumstances, boil the fluid in the brake calipers resulting in very dramatic (but temporary) loss of braking ability.  As soon as the fluid cools again, things return to normal.  However, in most cases the friction material on the brake pads will be well beyond it's intended operating temperature producing a noticable "fading" of braking ability WAY WAY WAY before you would ever boil the brake fluid in the caliper.  Even worn out moisture-saturated brake fluid.

So unless you're going racing at the local road course or stopping heavy loads going down a mountainside in your truck, changing your brake fluid with each pad change is throwing away money, pure and simple.  If you're the nervous type, change it every 100K miles.  I've owned cars with a quarter million miles on them and never completely changed the brake fluid (only what was replaced with fresh when I put on a new brake caliper).

Like was said above, changing your own brakes is no big deal.  Requires usually only one special tool (brake pad spreader or just a big c-clamp).  Replace the rotors at the same time you do the pads (they usually just slide right off once you have the brake caliper removed on most cars).  The way the pads interact with the rotor is FAR more important than changing the brake fluid would ever be on a typical commuter car/daily driver.

Former ASE-certified mechanic in a past life.  Still an avid hot-rodder and racer.

 

 

Tue, 01/15/2013 - 16:32 | 3154887 CaptainSpaulding
CaptainSpaulding's picture

Thank you. I will do away with the brake fluid flush next time

Tue, 01/15/2013 - 17:39 | 3155532 MisterMousePotato
MisterMousePotato's picture

brake fluid is so easy, I can do it. if I can do it, anyone can.

google gravity brake bleeding.

not just easy - actually better, too.

also, will prevent the ... well, you know what happens when you say to your wife, "Okay, Honey. Now ... slowly press on the b-, no, I said 'press' ... ."

Etc.

Reminds me of the old joke, "Why did God make you so beautiful?" (Even my wife thinks that joke is funny.)

Wed, 01/16/2013 - 01:57 | 3156832 malek
malek's picture

Brake fluid is hygroscopic (it attracts water) and if there's enough water in your brake fluid

1. your brakes may fail on extreme downhill use because of steam bubbles forming (but still unlikely)
2. metal parts in your hydraulic braking system can start to rust on the inside (where the brake fluid resides), and may necessitate expensive repairs.

Therefore it is definitely a good idea to have the brake fluid changed every 2 years...

 

Tue, 01/15/2013 - 12:02 | 3154143 Racer
Racer's picture

I have known men who couldn't change a bulb or knowing about the need and how to check the oil level!

Tue, 01/15/2013 - 13:05 | 3154370 pursueliberty
pursueliberty's picture

I know more than I care to admit.  One wife bragged that her husband is good at writing checks, I laughed inside.

Tue, 01/15/2013 - 12:33 | 3154259 edifice
edifice's picture

That isn't fair. Many men live in situations (apartment complexes, for instance) where changing the oil, or any sort of car maintenance is impractical. I will agree that a disproportionate number of modern men simply lack the know-how to do these things. Thankfully, the first thing I was taught, after how to drive a manual, was how to rebuild an engine. Many men aren't as fortunate.

Tue, 01/15/2013 - 14:33 | 3154657 trav777
trav777's picture

it's not worth my time to change my own oil.  I have all the equipment and used to do it, got the stands, ramps, wrench, all of it.  I stopped when it stopped being worth my time to do it.

Tue, 01/15/2013 - 17:27 | 3155481 BooMushroom
BooMushroom's picture

As long as you can trade your labor for a higher value than your cost, you're good.

At $30 per oil change, when it would take most people an hour to change it themselves, I imagine it is good economics for many to have it done for them.

As employment continues to be more difficult to find, I think many will be forced to admit that it is worth their time to do it themselves.

Wed, 01/16/2013 - 00:17 | 3156646 akak
akak's picture

I think Trav is just averse to changing his own oil because it is, you know, black.

Tue, 01/15/2013 - 12:16 | 3154194 mercenaryomics
mercenaryomics's picture

Dealing with same issue forthwith. Need to get the timing belt on the 4runner changed, and just today the engine started accelerating in a jerky uneven fashion so I suppose a gasket or something similar.  

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