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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:

 

430Comments
Jan 15, 2013 5:56PM
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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 5:43PM
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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 5:39PM
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Ridiculous. What sucks for those that pay our debts each month is that we our also paying yours since those bad debts are wriiten off as an expense and creditors have to charge more to good customers for their goods and services to cover those costs. And I do not know for sure but believe there would be a direct correlation between individuals with bad debt and government welfare program receipts so I am paying for your entitlements too.
Jan 15, 2013 5:37PM
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Most people who "walk away from debt" have had a major medical issue that has forced them into bankruptcy.Yes there are still the deadbeats out there.How is it that an illegal immigrant can go to hospital and get free medical treatment no questions asked. If I went to the hospital and said I was here illegally I could get arrested for lying,but the person who is here illegally would not get arrested.Sound fair?  
Jan 15, 2013 5:34PM
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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
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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 5:32PM
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REMEMBER 1776, THE BRITISH, AND WHAT WE DID TO THEM BACK THEN!!!

I FEEL LIKE THE TIME IS COMING, ONLY THIS TIME IT'S OUR OWN GOVERNMENT!!!!!!!!!!!!!

AMERICA - - I KNOW YOU'RE NOT VERY GOOD AT IT - - -  BUT LEARN FROM YOUR EXPERIENCE!!!!!!!!!
Jan 15, 2013 5:31PM
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Have you ever seen the furniture store that goes out of business twice a year and reopens with a different name every time.  Grand opening sales and Going out of business sales.  That is kind of how our banking system is.  Grand opening sale is the selling of loans to people, I mean the newly printed money has to go to someone right, and then comes the going out of business sale.  Sell the loans, and down the line it goes but the catch is, you the tax payer is on the hook for the loan that was sold because of the going out of business sale.  Look it as no bid contracting.  Do you actually think the company that is contracted to build the house in Iraq actually builds it?  No, they sub it out.  Now do you think the first sub is going to build the house?  NO, The sub it out again and it goes on down the line until the house built is four 2x4's and a metal shingle roof.  This is our government folks.  Don't get me wrong, I am a firm believer in deregulation but that should not take the place of common sense and some sort of oversight.
Jan 15, 2013 5:30PM
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The Fire Chief Said...
For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.
Not fair to make judgment of this, until you see what the Fire Chief says!!!!

In South Los Angeles , a 4-plex home was destroyed by a fire.

A Mexican family of six, all welfare recipients and gang members,
Lived on the first floor, they died.

An Islamic group of seven welfare cheats,
All illegally in the countryfrom Kenya , lived on the second floor,
And they, too, all perished in thefire.

6 LA, Hispanic, ****ers, & ex-cons,
Lived on the 3rd floor and they, too, died.

A lone, white couple lived on the top floor.
The couple survived the fire.

Jesse Jackson, John Burris and Al Sharpton were furious!!
They flew into LA and met with the fire chief, on camera.
They loudly demanded to know,
Why the Blacks, Black Muslims and Hispanics,
All died in the fire and why only the White couple lived?

The Fire Chief said,
"They were at work"
Jan 15, 2013 5:27PM
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On Monday, June 25th 2012, the following occurred: The Supreme Court unanimously - yes, UNANIMOUSLY - upheld the portion of Arizona 's Immigration Law that directs law enforcement officers to check the immigration status of   EVERYONE who is ARRESTED for a crime. It not just "ALLOWS" them to check, but "DIRECTS" them to check. That means it 's mandatory.

Less than three hours later, the President of the United States issued an executive order BLOCKING THE ENTIRE STATE OF ARIZONA 'S ACCESS to the the Federal Database that would allow such checks. The only State or Local entity EVER to be blocked.
One hour after that (which means they had it all ready in advance), the Department of Justice went live with a toll-free number, a web site, and ads, ASKING FOR PEOPLE TO REPORT BEING "RACIALLY PROFILED" because of this ruling, so they - THE U.S. JUSTICE DEPARTMENT - can file "Civil Rights" lawsuits against the Police Departments, Sheriffs, Cities, Counties and State of Arizona .

In other words, the American Citizens of the State of Arizona are going to be sued for vast sums of money, BY THEIR OWN FEDERAL GOVERNMENT, for enforcing a law that The Supreme Court UNANIMOUSLY held as constitutional.
 
Jan 15, 2013 5:26PM
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You know you live in a Country run by idiots if...

Using the "N" word is considered "hate speech" but writing and singing songs about raping women and killing cops is considered "art".


Jan 15, 2013 5:26PM
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There was a university professor who recently made waves when he suggested students default on their student loans. His point is valid in that private schools and government have been encouraging young people to take on huge debt in order to finance higher education, yet good paying jobs after graduation have been very difficult to find. In effect, the students have been cheated by the system, so it's moral to resist paying back the borrowed money. In cases like this I don't consider those who don't pay back student loans to be deadbeats. They are victims of a scam, aided and abetted by government. 
Jan 15, 2013 5:26PM
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You know you live in a Country run by idiots if...

You have to have your parents signature to go on a school field trip but not to get an abortion.


Jan 15, 2013 5:25PM
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You know you live in a Country run by idiots if...

You pay your mortgage faithfully, denying yourself the newest big screen TV while your neighbor defaults on his mortgage (while buying iPhones, TV 's and new cars) and the government forgives his debt and reduces his mortgage (with your tax dollars).
Jan 15, 2013 5:25PM
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Try paying bills with no job! How many Americans walked away without paying mortgages and credit cards, well figure it out buddy. If your going to tally all of it, don't leave nothing out. How about the banks and brokers that walked away with millions, and paid no dues. How about Americans that were left with homes that had lesser value, and the banks wouldn't refinance them because of it. Go ahead and spill your guts, we all know the truth. I'm not saying that all people are honest, but very many fall into this group, and you know it.

Jan 15, 2013 5:24PM
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You know you live in a Country run by idiots if...

The rights of the Government come before the rights of the individual.


Jan 15, 2013 5:24PM
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You know you live in a Country run by idiots if...

Being self-sufficient is considered a threat to the government.


Jan 15, 2013 5:24PM
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You know you live in a Country run by idiots if...

Hard work and success are rewarded with higher taxes and government intrusion, while slothful, lazy behavior is rewarded with EBT cards, WIC checks, Medicaid, subsidized housing, and free cell phones.
Jan 15, 2013 5:23PM
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You know you live in a Country run by idiots if...

Your government   believes that the best way to eradicate trillions of dollars of debt is to spend trillions more of our money.
Jan 15, 2013 5:19PM
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As long as you don't major in something silly (such as gender studies) but in something that is actually employable (such as engineering, science, mathematics, etc.) then student loan debt is acceptable. Unfortunately, in many places in this country, we lack public transportation and so a reasonable (as in not a Mercedes unless you can actually afford it) car loan is acceptable. Everyone wants to own a house and so a reasonable (as in what you can afford) home loan is acceptable. The occasionally emergency happens and you may have to use a credit card but that should be paid off as quickly as possible and only be an emergency. Other than that, you should NEVER go into debt. I love a new television and vacation as much as the next American but if it has to go on the credit card then I'll go without it.
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