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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:

 

359Comments
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 5:31PM
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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 5:26PM
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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 5:25PM
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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 5:19PM
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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.
Jan 15, 2013 5:15PM
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Americans are just following the example set by their government.
Jan 15, 2013 5:10PM
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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
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When a dead beat from Chicago is put in POWER..   Yes! what did you expect?
Jan 15, 2013 4:56PM
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Spend wisely, buy what you need and stop trying to keep up with the Jones.
Jan 15, 2013 4:54PM
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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 4:52PM
Jan 15, 2013 4:44PM
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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 4:42PM
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Just following the policies of our leadership.
Jan 15, 2013 4:40PM
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This clown has to be doing this on purpose.  $117 Trillion in unfunded obligations.  The politicians are deadbeats.
Jan 15, 2013 3:36PM
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when the people start to laugh at their government, the end is near.
Jan 15, 2013 2:53PM
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The American people, and their government,  are the world's greatest deadbeats.  This goes back to our founding when we stole land and reneged on treaties. it's in our national DNA . We can't help but be thieves, liars, and deadbeats. 
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