US might be a 'nation of deadbeats'
Americans have been paying down debt but walking away from more.
This post comes from Brett Arends at partner site MarketWatch.
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:
- Can Bieber make prepaid cards cool?
- 10 things your office won't say
- Banks bury fees in the fine print
- Smart Spending on the go: Get our app for Android or iPhone
- New budget fix: Pawn Mount Rushmore?
- Should we all pay more taxes?
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.
Since 47% of the nation lives on entitlements provided by the other 53% the US is indeed a nation of deadbeats.
A lot of the credit card write-offs that the author speaks of are the result of predatory lending practices.
Many people signed up for credit cards with reasonable interest rates, only to have the rates raised to a level that makes it almost impossible for them to pay off their debts.
The credit card companies made a business decision, betting that they could make more money by keeping people on a "payment treadmill," even though they knew a certain percentage of these people would not be able to make their payments.
If one person pays off their debt by making payments that amount to three times their principle balance, it makes up for someone else who doesn't pay at all.
Sure the borrowers share some of the blame, but is it anything other than predatory to offer $10,000 credit lines with low introductory rates to kids who may be only 19 or 20 years old?
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.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Nearly half of family caregivers spend more than $5,000 a year, plus caregiving affects their jobs and retirement plans.
- America's most counterfeited products
- Driver survey: Men irked by phone talkers, women by lane cutters
- 5 reasons to take the company buyout (and 5 not to)
- Tired of Fed-watching, saver? Check out these banks instead
- New software targets credit card thieves at gas pumps
- Thinking of holiday shopping? Do a reality check first
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'