July 14, 2006


Caption: This butterfly would have a serious debt problem if he didn't have a good job.

This is the final post in a series exploring issues of debt at the international, national and household level.

While issues of debt are not as lethal to average Americans as they are to people living in places like Africa, the consumer debt situation in the United States isn't pretty.

According to the Economic Policy Institute:

*After adjusting for inflation, U.S. household indebtedness has risen by 42 percent in the last five years;

*The level of debt as a percentage of after tax income is at its highest recorded level, with mortgage and consumer debt standing at 120 percent of after-tax income. This is more than twice the level of 30 years ago;

*The percentage of after-tax income that goes to pay off debts is at an all time high; and

*The personal savings rate is negative for the first time since the Great Depression.

MSN Money reports that

About 43% of American families spend more than they earn each year.

Average households carry some $8,000 in credit card debt.

Personal bankruptcies have doubled in the past decade....

American consumers owed a grand total of $1.9773 trillion in October 2003, according to the latest statistics on consumer credit from the Federal Reserve. That's about $18,654 per household, a figure that doesn't include mortgage debt. The number is up more than 41% from the $1.3999 trillion consumers owed in 1998.

As the publication of the Annie E. Casey Foundation points out, debt strikes hardest at the poor, who are often cruelly exploited by predatory lending practices such as payday lending, rent-to-own schemes, and rapid income tax refund loans.

In the case of credit cards, the number of families with incomes of less than $10,000 a year that carry balances month to month increased by 72 percent between 1989 and 2001. In the same period, the average balance carried over increased by 184 percent. Between 1994 and 2004, average credit card late fees increased by 150 percent.

As the late great Appalachian radical poet Don West once said, "Poverty pays unless you're poor."

In many cases, issues related to health care can trigger a debt crisis. Medical costs are factors in about half of all bankruptcies. (And let's not forget that our congressional kleptocracy recently "reformed" bankruptcy laws to further stack the deck on behalf of creditors.)

Unquestionably some of America's debt problem is driven by questionable decisions, rampant consumerism, and a lack of financial literacy. But there's more to the story.

While incomes have risen dramatically for CEOs and the wealthy, the prosperity hasn't been shared across the population. Wages have been largely stagnant and the number both of people living in poverty and of uninsured Americans has increased yearly since 2000.

What to do? More efforts to promote financial literacy wouldn't hurt but aren't enough. For starters, America needs a raise, particularly the millions of minimum wage workers. The nation's health care crisis needs to be addressed not by "market based" health savings accounts but by moving towards universal care.

Programs like the Earned Income Tax Credit and asset-building Individual Development Accounts should be expanded, as should programs that promote home ownership.

Instead of hiking interest rates on higher education loans as congress recently did, we should be making college and vocational training more affordable. Sane federal budget priorities wouldn't hurt either.

In a word, we should try to ensure a degree of shared prosperity rather than a widening gap between the very wealthy and everyone else. To quote from the person who inspired the title of this series, "a house divided against itself cannot stand."


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