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We Might As Well Face It – America Is Addicted To Debt
Submitted by Michael Snyder via The Economic Collapse blog,
Corporations, individuals and the federal government continue to rack up debt at a rate that is far faster than the overall rate of economic growth. We are literally drowning in red ink from sea to shining sea, and yet we just can’t help ourselves. Consumer credit has doubled since the year 2000. Student loan debt has doubled over the course of the past decade. Business debt has doubled since 2006. And of course the debt of the federal government has doubled since 2007. Anyone that believes that this is “sustainable” in any way, shape or form is crazy. We have accumulated the greatest mountain of debt that the world has ever seen, and yet despite all of the warnings we just continue to race forward into financial oblivion. There is no possible way that this is going to end well.
Just the other day, a financial story that USA Today posted really got my attention. It contained charts and graphs that showed that business debt in the U.S. had doubled since 2006. I knew that things were bad, but I didn’t know that they were this bad. Back in 2006, just prior to the last major economic downturn, U.S. nonfinancial companies had a total of about 2.6 trillion dollars of debt. Now, that total has skyrocketed to 5.8 trillion…
Companies are sitting on a record $1.82 trillion in cash. That might sound impressive until you hear companies owe three times more – $5.8 trillion, according to a new report from Standard & Poor’s Ratings Services.
Debt levels are soaring at U.S. non-financial companies so quickly – total debt outstanding rose $650 billion in 2014, which is six times faster than the $100 billion in added cash.
So are we in better condition to handle an economic crisis than we were the last time, or are we in worse shape?
Let’s look at another category of debt. According to new data that just came out, the total amount of student loan debt in the U.S. is up to a staggering 1.2 trillion dollars. That total has more than doubled over the past decade…
New data released by The Associated Press shows student loan debt is over $1.2 trillion, which is more than double the amount of a decade ago.
Students are facing an average of $35,000 in debt, that’s the highest of any graduating class in U.S. history. A senior at University of Colorado, Colorado Springs, Jon Cheek, knows the struggle first hand.
“It’s been a pretty big concern, I work while I go to school. I applied for a bunch of scholarships and done everything I can to try and keep it low,” said Cheek.
And of course it isn’t just student loan debt. American consumers have had a love affair with debt that stretches back for decades. As the chart below demonstrates, overall consumer credit has more than doubled since the year 2000…
If our paychecks were increasing at this same pace, that would be one thing. But they aren’t. In fact, real median household income is actually lower today than it was just prior to the last economic crisis.
So American households should actually be cutting back on debt. But instead, they are just piling on more debt, and the financial predators are becoming even more creative. In a previous article, I discussed how many auto loans are now being stretched out for seven years. At this point, the number of auto loans that exceed 72 months is at an all-time high…
The average new car loan has reached a record 67 months, reports Experian, the Ireland-based information-services company. The percentage of loans with terms of 73 to 84 months also reached a new high of 29.5% in the first quarter of 2015, up from 24.9% a year earlier.
Long-term used-vehicle loans also broke records with loan terms of 73 to 84 months reaching 16% in the first quarter 2015, up from 12.94% — also the highest on record.
When will we learn?
The crash of 2008 should have been a wake up call.
We should have acknowledged our mistakes and we should have started doing things very differently.
But instead, we just kept on making the exact same mistakes. In fact, our long-term financial problems have continued to accelerate since the last recession. Just look at what has happened to our national debt. Just prior to the last recession, the U.S. national debt was sitting at approximately 9 trillion dollars. Today, it is over 18 trillion dollars…
Our debt has grown so large that we will never be able to get out from under it. This is something that I covered in my recent article entitled “It Is Mathematically Impossible To Pay Off All Of Our Debt“. Because of our recklessness, our children, our grandchildren and all future generations of Americans are consigned to a lifetime of debt slavery. What we have done to them is beyond criminal. If we lived in a just society, a whole bunch of people would be going to prison for the rest of their lives over this.
During fiscal year 2014, the debt of the federal government increased by more than a trillion dollars. But in addition to that, the federal government has more than seven trillion dollars of debt that must be “rolled over” every year. In other words, the government must issue more than seven trillion dollars of new debt just to pay off old debts that are coming due.
As long as the rest of the world continues to lend us enormous mountains of money at ridiculously low interest rates, we can continue to keep our heads above the water. But this can change at any time. And once it does, interest rates will rise. If the average rate of interest on U.S. government debt was to return to the long-term average, we would very quickly find ourselves spending more than a trillion dollars a year just on interest on the national debt.
The debt-fueled prosperity that we are enjoying now is not real. It is a false prosperity that has been purchased by selling future generations into debt slavery. We have mortgaged the future to make our own lives better.
We are addicts. We are addicted to debt, and no matter how many warnings we receive, we just can’t help ourselves.
Shame on you America.
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File this in my "no fucking shit captain obvious" file.
It's Admiral Obvious kind sir. Admiral!
Has debt always been our necessary evil? Does our system require it to sustain itself? Can we live without it in a fractional banking system? Social Security is, no was, a debt machine for U Sam, treasuries are a debt machine, hell, it is our financial system. Of course we are not following the prescribed dosage.
Full reserve banking is the antidote to fractional reserve counterfeiting.
Rothchild's say no.
And they teach counterfeit is money and stealing is banking and the green grass grew all around and around and the green grass grew all around.
We might as well face it, bankers are writing the laws....
two hoots a newbie shill. Don't be confused.
two hoots a newbie shill. Don't be confused.
Actually, it pisses me off. I am not debt addict and would gladly not go into any debt if possible. Thanks to the Fed, we are no longer able to save for our long term expenses ( such a a new roof on our house) and now must use our HELOC to bridge the gap. We no longer can save for a car. Two reasonable incomes can no longer do this.
No fucking shit? Hell I say fuck them with a train.
Miffed
Train? Train. Train!
https://www.youtube.com/watch?v=hBP15lRprPs
patience folks; this picnic has a tornado coming and nobody is watching the sky...
True, the tornado is called "demographics". As the two oldest generations retire and leave not only a massive shit pile of debt but a tidal wave of monthly checks for medical and retirement. One day those bonds will implode and go up in a ball of flame.
musics still playin'....................dance bitxhez !!!!
Watch how you throw that word "we" around kemosabe. Some people are addicted to debt, but a minority of us have debt forced upon us.
That title and no Palmer reference anywhere?
https://www.youtube.com/watch?v=XcATvu5f9vE
Mike Snyder likes to think he's immune to the stuff...but he's gonna have to face it
Debt...it's simply irresistible.
F U! Let's just say the saver is the one getting the shaft. If other people want to go in debt and then file BK, thats up to them. I'm not one of those people.
Not sure who's better off, the saver or the spender.
According to Bank of America Merrill Lynch:
http://personal.crocodoc.com/AwP30H2
The Fed and income inequality
Don’t stop ‘til you get it on
Critics of the Fed argue that by stimulating asset markets easy Fed policy is benefiting upper income families, but not helping people who do not own assets. In reality, the biggest impact of easy Fed policy is to speed the drop in the share of the population that are unemployed and hence have zero labor income—the most pernicious instance of inequality. The Fed cannot fix the long-run trend toward income inequality, but it can reverse the recession-induced increase by ensuring a full recovery in the job market, normal wage growth and then—and only then—a return to normal interest rates.
Reverse Robin Hood
Critics of Fed policy have offered an ever evolving list of complaints: the Fed is risking runaway inflation, a collapse in the dollar, massive asset bubbles, and damaging people on interest income. The latest: the Fed is causing income inequality. Fed has caused a big stimulus to asset markets, but no real stimulus to the economy. Hence, the only beneficiaries of Fed policy have been upper income families with large asset holdings, leaving the average Joe behind. The Fed should normalize policy ASAP.
Ben blogs back
The latest counter argument comes from Ben Bernanke’s blog and several papers from Brookings. Bernanke points out that widening inequality is a very long-run trend and the impact of monetary policy is small and ambiguous. Easy policy does stimulate asset markets, favoring the rich, but this is more than offset by the stimulus to the labor market. Easy policy also benefits the middle class by raising asset values for the 60% of families that own their own home. Finally, by pushing up inflation Fed policy benefits debtors—lowering real repayment costs—over creditors, and debtors tend to have lower income than creditors.
Cutting off your nose to spite your face
In our view, if anything, Bernanke is being too generous to his critics. There are two big stories at play. First, monetary policy doesn’t push the economy back to full employment by magic; it does it by stimulating asset markets, bank lending and confidence. Hence, monetary policy cannot stimulate growth without rewarding asset holders. (By contrast, fiscal policy can target low income people.) Moreover, in each business cycle, the profit share of income surges at the start of the recovery and then fades in the second half of the recovery as the unemployment rate drops and workers acquire wage negotiating power (Chart 1). Advocates of an early Fed exit are in effect telling the Fed: “stop trying to get the economy to the second stage of the business cycle recovery when profit growth slows and wages accelerate.”
The second even bigger story here is that there is no better way to reverse a cyclical deterioration in income distribution than to quickly restore full employment. Unemployed people by definition have no labor income and rely purely on government help or investment income. Hence, in most cases, unemployment pushes workers into the bottom of the income distribution. Thus, the main cause of the cyclical increase in income inequality was not that wages were weak relative to investment income, but rather that the unemployment rate surged from 4.4% in mid-2007 to a peak of 10.0% in October 2009. The reversal back to 5.4% means 4.6% of people actively looking for a job are no longer earning zero labor income.
Taking this a step further, the cyclical drop in the unemployment rate—as always—has disproportionately benefited disadvantaged groups (Table 1). The unemployment rate for teens has dropped more than for prime age workers, rates for Blacks and Hispanics have dropped more than for Whites and Asians, and rates for people with a high school degree or less have dropped more than those with a college diploma. The share of workers in part-time jobs has dropped and the share of long-term unemployed has also dropped. These disadvantaged groups are still worse off than the average person, but the gap has shrunk back toward more normal levels. Why would the Fed want to abort this process?
My problem with the debt is that it no longer comes with any risk associated with it. Banksters get huge amounts of debt that is backstopped by the FED.
Without real risk to the underlying collateral, debt is used stupidly and for the wrong purposes.
When the lender has no risk of loss, the lender has no prudence.
I agree with them to a certain extent, the Fed is just kicking the can the only way they can.
The alternative is an ultra depression, which the US as it exists couldn't survive ... maybe they shouldn't, but the transition will not be painless (or bloodless).
"We Might As Well Face It – America Is Addicted To Debt"
"America is the country of people and the land they inhabit. The US is the criminal nation that is criminally occupying and oppressing the American country and people."
The debt represents stolen deposits and counterfeit fiat; wealth stolen from the American people. The debt is the instrument of plunder in the plundering of the American country and people by Zion and their grifting banksters.
Some of the lucre is used to pay off the DC US pols and crats so as to keep the scheme going.
"We Might As Well Face It – The DC US Is Addicted To Plunder and Related Tyranny"
Liberty is a demand. Tyranny is submission..
And once it does, interest rates will rise...
the fuck they will
what choo talkin' about willis? [/arnold]
There was this idea once,,,
It won't work.
two hoots a newbie shill. Don't be confused.
Noted thanks.
As usual Mr Snyder, in accordance with his Judeo-Christianity, has BLINKERS ON, and so misses the OBVIOUS point.
It is not that America is addicted to debt, it is that we have a parasitical element amongst us.
It started long ago:
http://www.bamboo-delight.com/download/Sumerian_Swindle_v1.pdf
Mugging Americans: ObamaCare’s Jonathan Gruber And Norbert Schlei Of The 1965 Immigration Act
It would seem the banksters have us right where they want us.
I agree the situation is serious but the charts shown should be adjusted for inflation. All long term charts should be adjusted for inflation.
Using the reported CPI numbers shouldn't make much difference.
Oh, do you mean the REAL inflation numbers...? The cat will be out of the bag soon.
Spend 'em if you got 'em, cuz we are going full Weimar soon enough...
Mathmatically impossible to pay you say?
So if the FED starts buying two year paper from .gov at negative ten percent interest we would still have a problem with federal debt?
what do they "BUY" it with?
Gold , if there is any
or Bombs
Might as well face it, you're addicted to spuds..
Without the debt, we don't get the lifestyle. So isn't the lifestyle the addiction?
Actually..
America is addicted to free money.
"You slave for us while we print money for you."
It means free goods & services for America & its allies the Lords of Planet earth.
Africa discovered the answer--
Zimbabwe dollars.
According to the International Monetary Fund:
http://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf
Causes and Consequences of Income Inequality: A Global Perspective
EXECUTIVE SUMMARY
We should measure the health of our society not at its apex, but at its base.” Andrew Jackson
Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades. Inequality trends have been more mixed in emerging markets and developing countries (EMDCsf), with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain. Not surprisingly then, the extent of inequality, its drivers, and what to do about it have become some of the most hotly debated issues by policymakers and researchers alike. Against this background, the objective of this paper is two-fold.
First, we show why policymakers need to focus on the poor and the middle class. Earlier IMF work has shown that income inequality matters for growth and its sustainability. Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels.
Second, we investigate what explains the divergent trends in inequality developments across advanced economies and EMDCs, with a particular focus on the poor and the middle class. While most existing studies have focused on advanced countries and looked at the drivers of the Gini coefficient and the income of the rich, this study explores a more diverse group of countries and pays particular attention to the income shares of the poor and the middle class—the main engines of growth. Our analysis suggests that
- Technological progress and the resulting rise in the skill premium (positives for growth and productivity) and the decline of some labor market institutions have contributed to inequality in both advanced economies and EMDCs. Globalization has played a smaller but reinforcing role. Interestingly, we find that rising skill premium is associated with widening income disparities in advanced countries, while financial deepening is associated with rising inequality in EMDCs, suggesting scope for policies that promote financial inclusion.
- Policies that focus on the poor and the middle class can mitigate inequality. Irrespective of the level of economic development, better access to education and health care and well-targeted social policies, while ensuring that labor market institutions do not excessively penalize the poor, can help raise the income share for the poor and the middle class.
- There is no one-size-fits-all approach to tackling inequality. The nature of appropriate policies depends on the underlying drivers and country-specific policy and institutional settings. In advanced economies, policies should focus on reforms to increase human capital and skills, coupled with making tax systems more progressive. In EMDCs, ensuring financial deepening is accompanied with greater financial inclusion and creating incentives for lowering informality would be important. More generally, complementarities between growth and income equality objectives suggest that policies aimed at raising average living standards can also influence the distribution of income and ensure a more inclusive prosperity.
According to Natixis:
http://cib.natixis.com/flushdoc.aspx?id=85583
Public debt ratios must be reduced, but how?
The high level of public debt is a permanent threat to growth: if interest rates rise, rapid tax increases or government spending cuts would be needed, with the risk of creating tax distortions and reducing potential growth. This threat may also drive private economic agents to build up precautionary savings.
It would therefore be very positive to reduce public debt ratios, but how?
- By keeping long-term interest rates lower than nominal growth, although this reduces the public debt ratio extremely slowly. In addition, it is dangerous from a financial stability point of view and may generate negative incentive effects;
- By monetising the public debt, i.e. by transferring it to the central bank’s balance sheet, and by cancelling it (actually or de facto); but one must then accept the risks linked to chronic excess monetary creation;
- By considerably extending the maturity of the public debt, by replacing it with bonds with a very long maturity (50 years, 100 years, perpetuity), by taking advantage of the very low level of long-term interest rates. This would considerably reduce the interest rate risk weighing on the public debt. The criticism often levelled against this method is that it shifts the burden of repayment to future generations;
- A more original approach: by cancelling the part of the public debt held by residents; there is then de facto neutrality: on the one hand, the residents receive interest on the government bonds they hold and, on the other hand, they pay taxes that finance the interest on these bonds. The cancellation of the debt eliminates both the interest on the debt held domestically and the taxes that finance it, resulting in macroeconomic profitability. The redistributive effects of this debt cancellation will still have to be corrected, which is possible. We obviously know that this possibility will never be used.
"The redistributive effects of this debt cancellation will still have to be corrected, which is possible."
Oh, do tell ...
The inherent trickle up of Capitalism:
a) Those with excess capital invest it and collect interest, dividends and rent.
b) Those with insufficient capital borrow money and pay interest and rent.
So it is safe to assume most of the debt sits with those least able to afford it.
Why do you think bankers have targeted these markets?
Sub-prime housing; sub-prime autos and students.
Those with no Capital, the rich just don't need loans or debt.
The Payday loan companies also have spotted another group with little Capital, the working poor whose pay checks just don't last the month.
(Trickledown economics was an invention of US billionaires looking for lower taxes.)
"Our debt has grown so large that we will never be able to get out from under it."
If you don't mind destroying the reserve currency status of the US dollar it can be whiped away in a day.