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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Ace Ventura's picture

Do some info-digging beforehand. How many miles on your 4Runner? Also make sure there is a timing belt involved in the first place. Several manufacturers have gone back to using chains instead of belts, as these tend to last much longer and are not as predisposed to sudden failure, would can really mangle your engine internals.

Jerky, uneven acceleration is usually a problem with uneven mixture of fuel/air being metered into the engine, usually due to mass airflow or throttle position sensors going bad or simply being dirty. One good piece of advice is to start with the simplest cause and work your way up from there.

YouTube and yahoo/google/bing search for your symptoms, and you'll find many how-to videos on a bunch of stuff.

P.S. If you're referring to replacing the serpentine accessory belt on your 4Runner, that is a job you can do yourself in one afternoon easy.

Argentbilly's picture

Just got a third recall notice from Toyota, another rust issue for the Tocomas. They blame it on high road salt use in Northern States. Although, not the intent of your post avoid 2000 and up Toyotas like the plague. 1970's Toyotas are some of the best cars ever built however. 

kridkrid's picture

It all will get turned off eventually.  SNAP will be gone or the amount will be trivial at best.  There won't be short term loans anywhere but a pawn shop.  But the pawn shop will likely close as it becomes too easy of a target for those who can't be fed by their SNAP payments. 

Get creative.  I don't think there is any sort of dystopian scenario that lies outside the realm of possibility.  Start with the things that you know to be certain and recognize that welfare of any sort is never about charity or altruism... rather a kind of bread and circus in the form of Ho-Ho's and cable.

Big Slick's picture

A MILLION arrows up kridkrid! 

Going to what you know is so simple yet so powerful.

Cognitive Dissonance's picture

As a nation we have abandoned the concept of thrift, of putting off instant gratification today (usually of what we want) in order to be able to pay for what we need (there is a big difference between need and want) in full tomorrow after our savings have accumulated. As well, we as individuals of this nation no longer have any substantial buffer to speak of, a word used often in the Cog household.

<Have you seen the buffer honey. It was JUST here a moment ago.>

Yes We Can. But Lets Not.'s picture

Does this 'buffer honey' come in a tube?

Cognitive Dissonance's picture

Mrs Cog is the honey and I sure do love her buffer. :>)

RockyRacoon's picture

Get back to that feature article, slave-dog.

(Note that a comma should come before the direct address, thus alleviating any confusion of having "honey" adjectivally modify "buffer".)

koncaswatch's picture

Cash flow management; the true secret to financial sucess of any entity, personal or business. The trillions of dollars of cashflow related to the US debt are trapped in a circular flow between the TBTF banks and the FED. Meanwhile taxpayers get to pay for it all.  As the article lead in depicted, everything down the drain.

sudzee's picture

Platinum now priced above gold on it's way to a trillion.

Temporalist's picture
South African miner Amplats closes shafts and cuts jobs

"Anglo American Platinum has said it will cease production at four mine shafts in the Rustenburg region of South Africa, which could lead to the loss of almost 14,000 jobs.

The world's biggest platinum producer said lower demand for the precious metal and higher costs meant the shafts were unprofitable."



And in similar bullish news:

Hey Wall Street, get ready for more layoffs


CrimsonAvenger's picture

I remember when my shaft was closed. Saddest day of my life.

trav777's picture

Silverbugz idiots waiting on "industrial panics" on this metal should look at the production bottleneck in Pt if they want to chase this type of home run.

The problem is that, being stupid silverbugz muppets, they're too busy getting repeatedly blowtorched to save up enough money to buy platinum.

If RSA goes TU, which it will inevitably absent a reinstitution of apartheid, the vast majority of Pt production goes offline (80%).  RSA is, like any of these countries, always only one election away from a Mugabe.  It's only a matter of time at this point.

akak's picture

The only things surrounding silver here on ZH that have been "blowtorched" have been your objectivity, your rationality and your credibility, all of which are smoking and in ashes after your frequent, nonsensical and specious generalized attacks against silver holders, the overwhelming majority of whom are substantially ahead on their investments/savings over the past five or ten years, regardless of exactly when they purchased silver. 

You only make (even more of) a fool out of yourself every time you make these ridiculous, dishonest and wildly emotional attacks on "silverbugs".  Dance, troll puppet, dance, to the rising note of the silvery flute!

azengrcat's picture

The ultimate poor person asset stripping machine:




Super Broccoli's picture

oh i'm sick of all those useless petitions !

what about we petition to forbid petitions ?

overmedicatedundersexed's picture

paid my income taxes, some yrs in the 6 figures, paid ss, paid state and local and sales taxes, paid real estate taxes, paid off my home am debt free, yet I am the problem and the elite powers get the bail outs..so many here blame us god fearing gun owner's who raised families and provided services to our fellow man..as for charity I am guilty there as well..went to war, served and tried to save who I could both with us and those poor peasant rice growers, ...well folks words to live by; no good deed goes unpunished

My Days Are Getting Fewer's picture

I am there to Brother - identical profile

2/101 68'-69 RSVN

overmedicatedundersexed's picture

mp 101 rsvn 69-71 we are many and have yet more work to do. don't want whats coming, but what i want got nothing to do with it.

My Days Are Getting Fewer's picture

Wrote this to my 101st Bro this morning:


Thank you for sending this excellent article Gordon.  I saved it in my electronic 'Nam archive.  At 3 AM, I was wake and watching old movies on TV.  They were running Jack Nicholson flicks.  Then, it dawned on me that Easy Rider was made in the spring of 1969, when I was soldiering with the 101st.  And yes, while I was on FSB Whip in the Ashau at the time Hamburger Hill went down, my friend Cpt John Pape of 1/101 was pulled out of the field with his company and shipped to FSB Professional to bail out the Americal Division in the Battle for Tam Ky. John's photo is on the cover of that June 1969 issue of Life Magazine. In Tam Ky, the 101st took casualties mirroring Hamburger Hill. And, after the first day of operations, the 101st did not have any flyable helicopters left.  The events at Tam Ky were suppressed, so as not to give anyone any more bad info to support an immediate withdrawal from 'Nam. I have an electronic copy of the after-action report published in 9/69, which made it on to the Internet, only because a handful of ex-pilots copied, by hand, a beat-up old copy they retrieved from the Army.     While we personally may have made successes out of our post-military lives, the culture of Easy Rider prevailed. Their adherents has kids and grandkids.  So did we.  But, we were out-numbered by the Easy Crowd. This is not the sole reason why our society is in moral and financial decline. But a significant contributing factor in my book.

MachoMan's picture

While we personally may have made successes out of our post-military lives, the culture of Easy Rider prevailed. Their adherents has kids and grandkids.  So did we.  But, we were out-numbered by the Easy Crowd. This is not the sole reason why our society is in moral and financial decline. But a significant contributing factor in my book.

So being an uncomfortable MIC pawn getting shot at and shit on in the jungle is somehow morally superior to being a comfortable MIC pawn smoking pot and riding motorcycles around?  Further, I'd like to hear how you made success out of your civilian life without accepting the easy rider lifestyle...

trav777's picture

well, the nation simply isn't the same PEOPLE as it was when it was ascendant.

It's 25% a 3rd-world country now.  EXPECT at least a 1/4 move toward the behavioral and cultural norms typified in 3rd world countries.

The basic notion of justice, right and wrong, government, the "social contract" is DIFFERENT between different people.  Different societies are that way because of the PEOPLE in them, not because of random accident.

For example, future time orientation.  A recent study asked various populations whether they would prefer to have say $3000 now or $3800 at the end of the month.  So many norweigians answered the latter - they had trouble completing the study because the norweigians thought the question was inherently stupid, "who in the heck would NOT choose the more money at the end of the month??!?"  The answer: well, nigerians.  Only 9% of them didn't take the money now now now.

Nigeria's society will feature a more present-time-oriented system of values, policy, and behavior.  This tendency among nigerians is WHY.  The society didn't create them in ITS mold, they created the society in THEIRS.

hooligan2009's picture

wow, a real spartacus...hat tip to you sir.

joego1's picture

Guilty of the same crime here. I can see my fate slowly coming into focus.

hooligan2009's picture

have no fear..spartacus is here too!

Notarocketscientist's picture

You strike me as an intelligent responsible person.


So why did you do all those things?  Don't you know that debt is the way to prosperity - there is no upside to paying anything off.


That's the new normal and has been for years

Stuck on Zero's picture

Call Greenpath and make an appointment for Uncle Sam.

Inthemix96's picture

It might be the fact that there are no jobs for people to do, so with no wage, never mind a livable one, people could be skint, EI:-

No fucking money?  I predict stealing on the increase from here on in, more suckers being nicked for trying to feed their families, more folk locked up for doing said stealing/looting, massive jail populations until there are so many in the jails, the inmates over-run the guards, and next thing you know, a full blown mad max scenario.

And dont get me started on when the cars and trucks wake up like that movie from the eighties predicted, the trucks will be chasing us down and running us over, twice, just to make sure.

Frightening times ahead ZHers, watch out for that car called "Christine", had a fucking shocking attitude toward humans if I remember right.

From Germany With Love's picture

Hint: if somebody feels they have to point out that "I/You/We are not X." it probably means they are X because otherwise it would probably be self-evident and such a remark would not have been necessary in the first place.

lolmao500's picture

When society is about to collapse, why the fuck would you care about being more in  debt??

Notarocketscientist's picture

Got git one of them subprime car loans.... sign up for a student loan... and get as many credit cards as you can.


Then go NUTS!  Fuck it

Sizzurp's picture

Just say No...to debt.  Toss aside the fear, and default now. 

Yea, though I walk through the valley of the shadow of death, I will fear no evil: for thou art with me...... psalm23

hooligan2009's picture

you were spartacus until "default now". pay your debts young man and walk away from the rest

MyBrothersKeeper's picture

Not ALL Americans going broke....just the ones in the private sector who aren't rich or don't qualify for welfare....you know those pesky middle class people

FubarNation's picture

'We are not a deadbeat nation'


Really fucking sad if he truly believes that.

Notarocketscientist's picture

No - America is a nation of LOSERS

Mad Mohel's picture

Long JHP and FMJ.

Peter Pan's picture

These people are doing what Krugman tells the government to do. I wonder why it's not working.........Ah I forgot they have to pay interest. So this is what will happen when governments have to pay real interest.

NEOSERF's picture

When you are borrowing to buy lottery tickets to "escape" poverty, you know the end is near.

Notarocketscientist's picture

That's a great idea - never thought if it.

monad's picture

Who are these Americans? All my shit is paid for, the only people I owe is the IRS, and they've been hounding me since I got pubes. Sure I don't have any russian bankers holding my money, who in their right mind would?

hooligan2009's picture

bravo sir! you are spartacus!

Notarocketscientist's picture

Who are they?


They are the majority who watch Dancing with Stars (re-runs) because they are so fucking braindead they can't remember who won (while eating a box of donuts with a gallon of cheap ice cream washed down with a case of Coke)

Whilst trading their food stamps for cash to buy more guns

That is America. 

monad's picture

Oh good. I thought it might be the 50 million people put out of work by the banksters. Remind me, the cold war being fake and all, who won WW2?

mayhem_korner's picture



Borrowing to pay off loans?  Why didn't I think of that.


the grateful unemployed's picture

in personal finance credit problems arise when you can't get any more. your prospects no longer merit a loan, you're like a washed up rock star. michael jackson was (supposedly) broke when he died. he needed that world tour. now his estate is worth a fortune (he was literally worth more dead than alive, not a good position if you are a race horse, or a rock star) but personally he couldn't raise any money, because he couldn't perform.

Montezuma's picture

They still dont get it... a militaristic nation costs money, if you want to expand your empires power across the world you need loads of money. Before when you build an army and went to war you pillaged everything the other nation/empire had.

The main problem with US is that its wars benefit mainly certain companies, just like bailouts help certain banks. People dont get shit.

If country has a strong middle class it has a strong economy, but US has debt ridden middle class, industries that make tons of money because of government contracts or free money but still avoid taxes by loop holes or just blackmail government to have a "tax holiday" or "repatriotism day".

Have you noticed that hardly anybody talks about Glass-Steagall or the Military Industrial Complex? First you fix those, then you start cleaning house in government corruption specially the hillbilly states that are in the FEDs tit all the time.

Will this happen? Fuck no. Its game over already, think what nutbags are going on and on about? "They are coming after our guns... 1776 will commence again..." I mean Jesus like the most important thing people have to think about aret AR-15 and highcapacity mags, why arent all these gun nuts and "patriots" serving their nation in the military? Because they are buch of pussies who only want to play war but dont want actually go to war.

Only hope for America has is that 20% dont belong to any organized religion, maybe at some point they stop believing the other shit too..

the grateful unemployed's picture

the people who don't belong to any in organized religion are sometimes called communists