Too Much Debt
March 19th, 2008 by Ana
I am still fuming about the Fed rate cut, and as I read around on various money news sites, I keep seeing a little phrase that just irritates me to no end: the notion that our current economic problems here in America are “caused by” the subprime mortgage debacle.
The subprime mortgage mess isn’t a cause, it’s a symptom. It’s like saying your fever is the cause of your illness, instead of addressing the underlying root problem. In the illness case it would probably be a viral or bacterial infection. In the economy, the root cause is TOO MUCH DEBT.
Consumers are overextended like never before: zero down adjustable subprime mortgages are only the tip of the iceberg. There’s auto loans, there’s credit cards (and more credit cards), there’s personal loans, there’s HELoCs, there’s HELs, and worst of all, there’s loans against your retirement savings (for those who have any retirement savings). With so many different ways to dig yourself into the debt hole, is it any wonder the economy is now flailing?
Consumers aren’t the only ones with the debt problem: businesses are now being described as “overleveraged” which I guess is a fancy term for being too far in debt. From what I have been reading, the overleveraging is at least half the reason for the financial markets’ volatility. The other reason I am seeing is sort of related: no one is sure how much these mortgage backed securities critters that all the subprime mortgages were packaged into are actually worth, or just how risky they are.
We can’t leave our government out of the debt-binge party either. Just how much of a budget shortfall does the government really have? Is anyone even sure anymore? The numbers quoted make my head hurt and eyes glaze over, and some watchdog groups claim those numbers are way under actual.
Basically, it all boils down to too much debt. It’s like a long weekend fifteen kegger frat party, and now it’s the first day back to class and everyone is waking up with a hangover. Instead of admitting to drinking way too much, everyone is saying it must have been because the beer was so cheap that they are hung over. Instead of admitting too much debt is the problem with the American economy, people say it’s the housing bubble and subprime mortgage contagion that is spreading.
Just call it like it is: the American consumer has too much debt. American businesses have too much debt. And the American government sets the standard for having way too much debt.
So what is the solution? Gee, if I had that answer I would be making a whole lot more than minimum wage plus tips! On the personal level, use your so-called “economic stimulus” check to start digging out of debt as you make a budget and get your personal finances under control. I really don’t see much of anything the average person can do about the business side of things, and as for government: VOTE. Vote even when the choices stink (like they tend to do). And don’t wait for the government to help you, they have their own debt to worry about.
Posted in debt |
March 19th, 2008 at 11:33 am
OH YA!!!
March 19th, 2008 at 1:23 pm
Excellent article, Ana. As usual, you’ve hit the nail on the head. I’m tired of people whining about not having any money, and then they turn right around and get two fleases and an interest only mortgage.
March 19th, 2008 at 2:00 pm
The fed really does set that standard for terrible spending practices. They do what is equivalent to me saying I have a surplus of money because I spent less than the maximum on my credit cards for the year.
March 20th, 2008 at 1:08 am
Yup, I totally agree with you. America is a nation of debt. Hopefully this interest cut will be used wisely by people to reduce debt. Unfortunately, I think most people won’t care.
March 20th, 2008 at 3:27 am
[…] DebtFREE Revolution: Too Much Debt. […]
March 20th, 2008 at 6:50 am
Debt is marketed heavily, it’s “NORMAL”, heck, there’s PF bloggers who promote debt as being financially successful and savvy. People are numb to their debts.
I paid off my last debt yesterday and intend with God’s help to remain debt free for the rest of my life.
No more ball and chain for me!!!
March 20th, 2008 at 7:42 am
I agree we have to much debt this is one of my new years resolution to better improve my fiances and I have been steadfast to this and have actually done a one year budget to paying off the debt. I have already paid off and closed 3 accounts and plan on keeping 2 when I am finished.
It so easy to take out a card of yeah we give you 10% off the purchase and then your in and away goes the spending. I got very concerned when my son went to college years ago and they greated them with applications for credit cards in exchange for a t-shirt. Many children have school debt and credit card debt when they graduate equaling the price of a house.
I hope they discuss this in schools with kids. In his middle school he took an economics course yeah yeah cooking he liked to cook but I came to love the class. They taught cooking, sewing but a surprise was how to do a budget, how to fill out an application for a job, how to do a resume, how to handle family conflict, how to punish a family member when doing wrong, how to open bank account and balance a check book. I hope they add to this course credit card us and interest rates and what all can happen being over extended in credit debt. I hope they show them about credit reports and how they affect house buying, jobs and loans.
One of the things I liked about the course is they put kids in groups of fours and became a family and had to resolve real life issues. Was this school unique or what have to love thos home economics classes after all. Oh yeah they are the first classes cut along with Art and Music when budgets are low. Did you know kids who are active in art and music do better at there studies. Well thats another story.
The best thing we can do is change our debt mistakes and educated the ones we love about the pitfalls and how to best build for your future not spend years paying for the past.
March 23rd, 2008 at 3:40 pm
Too much debt is a huge part of the problem. And excessive leverage is essentially excessive debt. One thing to keep in mind is that real businesses actually are fairly under-leveraged now. It is the investment banks, hedge funds, real estate investors… that are overly leveraged.
Also don’t forget both the huge amount of federal debt and the impact of high gas prices. Most economists said 10 years ago, that a 50 cent a gallon tax on gas would throw the economy into a huge recession. Well we have had the negative impact of that times 3 in the last couple of years.
March 24th, 2008 at 8:31 am
[…] presents Too Much Debt posted at […]
March 26th, 2008 at 8:22 am
[…] Healy held this week’s Carnival of Debt Reduction - the Moving Edition and selected my post Too Much Debt as one of his Editor’s Picks, saying: “This is probably the most passionate post in the […]
April 18th, 2008 at 8:21 am
Unfortunately the government wants people to keep taking on more and more debt to stimulate the economy. If people stop buying and start saving then the economy hurts - if people keep buying and not saving then they hurt. I know I don’t want to hurt…
July 10th, 2008 at 4:42 pm
Banks and lenders are now starting to pay for encouraging debt. The greed and unethical nature of the financial industry is now paying for encoiuraging the public o take on debt. All of a sudden the banks have lent too much money and cant survive themselves. Unfortunately we are paying foir that too.