Smart SpendingSmart Spending

US might be a 'nation of deadbeats'

Americans have been paying down debt but walking away from more.

By MSN Money Partner Jan 15, 2013 12:49PM

This post comes from Brett Arends at partner site MarketWatch.


MarketWatch logoPresident Barack Obama said on Monday that "we are not a nation of deadbeats," but instead a people who "pay our bills."


Image: WorriedMan (© Corbis)Really?


A close look at the data reveals a very different story -- and one that gets far too little airing in public discourse.


Far from paying our bills, the current generation of Americans -- or some of them -- have set records for default which probably have no parallel in the history of the human race. During the last five years, U.S. individuals have walked away from a staggering $585 billion in mortgages, credit card debts and other personal loans. That works out at about $6,000 per household.


And if the numbers are to be believed, there is probably a lot more to come.


Turn on any news program devoted to the economy and you will doubtless hear some Wall Street blowhard telling you that American households have been "repairing their balance sheets" and paying down their debts. They make it sound so virtuous, and they often then segue into sneering remarks about those degenerate Greeks and other Europeans who don't behave in the same responsible way.


The truth is very different. According to the Federal Reserve, U.S. household debt peaked five years ago at a gigantic $13.8 trillion. Since then it has declined to $12.9 trillion -- a decline of about 7%. To put that in context, household debts today still exceed those seen at the end of 2006, near the peak of the bubble. They are three times what they were in 1998.


Furthermore, the majority of that reduction hasn't come from people paying off their loans, but from banks writing them off.

The total debt reduction from the peak, says the Fed, is $954 billion. Loan write-offs, at $585 billion, account for 60% of that. In other words, for all the chest-thumping about how Americans are repairing their balance sheets and how we aren't a nation of deadbeats, in the past five years Americans have walked away from $3 in debt for every $2 they've paid off.


In the first quarter of 2010 alone, about 13% of all credit card debt was just written off.


Households weren't alone. Corporations have defaulted on $35 billion to $40 billion in debt per year in recent years, according to Moody's.


Naturally this has occurred even while the federal government has bailed out bankrupt financial institutions, and flooded the economy with massive deficits, low interest rates and free money to make it all easier.


Heaven knows what the situation would have looked like under a system of honest money.


It's easy to get too sanctimonious. Once a country gets itself into a disastrous debt hole, write-offs may be the only sensible way out. After all, for every reckless borrower there was also a reckless lender. If a debt is not going to be repaid, a policy of "extend and pretend," let alone, say, debtors' prison, is not going to help. So maybe deadbeat economics is the way to go.


But let's go easy on the chest-thumping.


More on MarketWatch and MSN Money:


Jan 15, 2013 4:52PM
Jan 15, 2013 4:44PM
I am not a deadbeat myself (I like to work to stay strong) though I do know more deadbeats than hard working folk. Everybody milks the system as best they can so they do not have to move that much and sit on a couch and watch Springer or Judge Judy. Then the other part of it,,NOT taking any responsibility for anything. Yeah at 50 years old now I have seen a dramatic shift towards being complacent and downright lazy as the years have gone by. I was raised to work hard and to not expect anything from anybody without earning it myself.
Jan 15, 2013 4:40PM
This clown has to be doing this on purpose.  $117 Trillion in unfunded obligations.  The politicians are deadbeats.
Jan 15, 2013 3:36PM
when the people start to laugh at their government, the end is near.
Jan 15, 2013 4:56PM
Spend wisely, buy what you need and stop trying to keep up with the Jones.
Jan 15, 2013 5:10PM
Bankruptcy use to be an evil thing. Now it is used like a reset button. What ever happened to being responsible? How can the leader of a nation which is in debt for almost 17 trillion dollars declare that nation is not a deadbeat borrower? Isn't that a bald faced lie? Maybe the definition of "deadbeat" has been amended by executive order...
Jan 15, 2013 5:08PM
When a dead beat from Chicago is put in POWER..   Yes! what did you expect?
Jan 15, 2013 4:54PM
Paying your bills means, you know, actually paying them.  Getting out of debt usually works best when you are minimizing or eliminating new debt.  Telling oneself, "If I spend even more money I don't have then I can reduce my debt" is something people have tried in the past.  I mean that honestly.  People have tried borrowing to pay off borrowed money and credit for years.  It never works though.  It just makes the problem bigger until it can no longer be sustained.  For just an individual or family it is disastrous.  Anyone else afraid of how bad it is going to be when America hits that point?
Jan 15, 2013 5:15PM
Americans are just following the example set by their government.
Jan 15, 2013 2:49PM

Oh, how quaint.  People don't realize the new modern way of paying back money is so easy now that we're much more enlightened than our forefathers about the whole matter, just print, baby, print!

Jan 15, 2013 4:42PM
Just following the policies of our leadership.
Jan 15, 2013 6:01PM
Why is it that a person can pay for their big cart of groceries filled with steaks and brand name food that I can not afford.Then they walk out to a nicer car then I can afford. There are too many people abusing the system.How many people are living together abusing the system getting entitlements they are not entitled to get. It seems like the only way you can get ahead in the world is to lie and cheat. How can a person make 15000 a year pay in 1000.00 dollars in taxes and get back 5000.00? How can a person be on welfare pay 0 taxes and get back 5000.00? Close the loopholes and reward the hard working.
Jan 15, 2013 6:24PM

Since 47% of the nation lives on entitlements provided by the other 53% the US is indeed a nation of deadbeats.



Jan 15, 2013 6:09PM
Here is idea for new entitlement program. For everyone that wants to work you will get a job.For everyone who does nto want to work you will get a one way bus,boat,or plane ticket to leave the country!!! That is what you are entitled to!!!
Jan 15, 2013 5:34PM
Uh, duh!  This is news?  Look at who was re-elected to last November!  All of those entitlement recipients voted for Obama so they could default for another four years...
Jan 15, 2013 5:34PM
I am debt free and have been for 3 years. Have never failed to repay a loan or make a payment on time. I equate walking away from a debt with stealing that money.
Jan 15, 2013 5:43PM
In the 50's to the 70's we had a robust working middle class, mostly in manufacturing. We were the greatest manufacturing country in the world. Now we are a consuming nation with a shrinking middle class and a huge poverty class. Thank you NAFTA.  And even with this knowledge and past example of economic growth, our congressmen can't figure out how to fix the economy. We can only blame ourselves. We put them there.
Jan 15, 2013 5:56PM
Worked steady for 45 years. When a lot of people in California have jobs they treat it like an entitlement program. Socialism has eroded away at what made America great. Incumbent elected officials are more interested in saving their career that doing the job. When politicians can buy the votes with the voters money nothing remains but a deadbeat country that is well on it's path to self destruction    
Jan 15, 2013 6:28PM
Gimme a break!  I'm a boomer and have witnessed what the economy has done to the younger generation.  My nephew is up to his eyeballs in student debt - he has little disposable income, so I try to help him out.  My son and his wife graduated college and couldn't find jobs so they went to China to work for a year.  My other nephew, an Army Ranger, college grad with many skills, has struggled to find work.  I have never seen anything like this and I feel so bad for them.  I think during the Great Depression people walked away from homes because there was no work and the banks took their money and the current climate is similar.  The younger generation doesn't seem to know that TV used to be free, phones were cheap and there was no such thing as bottled water.  They pay for all this stuff!
Jan 15, 2013 6:25PM

We are a nation of deadbeats and the biggest one is in the White House living off the American People.

Trying paying for your vacations Mr head Deadbeat. You've brought the office of Presidency to such a low that working Americans are disgusted by you.

When the shiftless hate the wealthy and are supported by the President its revolting.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.