Given a Shovel, Americans Dig Deeper Into Debt

[ShockediSay]

Source: NY Times

....

Years of spending more than they earn have left a record number of Americans like Ms. McLeod standing at the financial precipice. They have amassed a mountain of debt that grows ever bigger because of high interest rates and fees.

While the circumstances surrounding these downfalls vary, one element is identical: the lucrative lending practices of America’s merchants of debt have led millions of Americans — young and old, native and immigrant, affluent and poor — to the brink. More and more, Americans can identify with miners of old: in debt to the company store with little chance of paying up.

It is not just individuals but the entire economy that is now suffering. Practices that produced record profits for many banks have shaken the nation’s financial system to its foundation. As a growing number of Americans default, banks are recording hundreds of billions in losses, devastating their shareholders....

Read more: http://www.nytimes.com/2008/07/20/business/20debt.html

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This is exactly who led us here: the Bushies, the Bankers, the Oilers and their Lobbyist chiefs. Selling the US on a war of choice, all on borrowed money, while the richy rich got a free ride, and the vast majority of Americans are paying dearly, and will do so for many years to come.

Who said, 'One Nation, indivisible ...."

[yy4me]

1. We were given more than a shovel we were given a backhoe

or better yet, a bull dozer. I'm afraid the pit is getting deeper, filling with water and heading for a cave in or drowning.

Yes, I am now a half full person. Too many, including myself have worked too hard to deserve what these past 8 hears have brought us. Our government is supposed to be working to help things run smoothly, instead it is this malignant force of white marble down on the Potomac. It is filled to the brim with self-serving pol's whose main interest is not the country but the bank account.

If anything goes wrong is this next election, it will be the final blow to our freedom. Our remaining rights will be gone forever, this malignant dictatorship will have won.

[Scooter24]

2. We are a nation of "wants" and not "needs"

and people need to start learning to live within their means and back-off the credit reliance. This crisis is a huge wake up call and I'm sorry to say, it's going to hurt a lot of people.

Just a few days ago in Best Buy, I saw a man and his wife buy a huge LCD Television because they were able to secure financing on the store's credit card. I'm sure it's not a necessity and just that purchase alone added several thousand dollars to their debt.

But that's not to say that lenders and banks aren't being predatory in their practices either. They too share a huge portion of the problem. But in the end, nobody forces you to sign that credit card application, or that new car application, or that new home application. The public needs to learn to be a practical buyer with more emphasis on their income and not their credit limit.

[JDPriestly]

10. Actually, borrowers get something, whereas, right now, savers are getting nothing.

If you want people to manage their money better -- to save more -- you need to make sure that people who save get a higher return on their money than is now being offered. 2.1% does not even cover inflation. You have to search far and wide to find savings vehicles that pay 3.5-4.00 percent and are relatively safe.

With inflation getting worse every day, the couple buying the TV may end up paying a lot less in current dollar value than the amount they are signing up to pay. That is especially true if they got a deal in which the interest is delayed. They are borrowing current dollars that they will pay back in cheaper future dollars.

That is why the Fed needs to stop the inflation by raising interest rates, penalize banks that don't offer high interest rates to people who save in the banks (higher interest t rates and resulting higher deposits increase the liquidity of the banks and alleviate the risk of bank failures) and stop paying for the debts of those banks that have mismanaged their money.

At the same time, we need the government to stop funding wars and start funding infrastructure here at home that will build economic independence and opportunity for the future, namely right now, alternative energy and alternative transportation.

The current energy and transportation policy ignores the fact that we are an aging population. If you don't want people to still have to drive to buy groceries when they are 95 years old, then you have to take some of the funds that go for highways and transportation to provide alternatives to cars for the growing elderly population in this country.

The problem with conservatism is that it chooses to ignore changing realities. The US is lagging in the world today because we have been seduced by conservative philosophy into just hiding our heads in the sand.

We have to look to the future. It is going to be great if we face it and make it great. But it will be a horror if we keep looking too the solutions that worked in the past. We have to learn from the past, not repeat it.

[brentspeak]

13. Well said

[AdHocSolver]

25. The Fed's artificially low interest rates were designed to enrich the corporations in several ways.

By paying no more than one percent or less on savings put in a bank, people were "encouraged" to earn a greater return on their savings by investing in the stock market. This was part of the Ponzi scheme to defraud the public.

As people pulled their savings out of banks and bought stocks, their "demand" for stocks drove the stock prices up. The stock market went up because of price "inflation", not because the corporation was, or would be, making increased profits. Extreme examples are Enron and many of the "Dot.coms".

The insiders know when the truth about the profitability (or lack thereof) of the company will come out, and they sell while the price is still high. The previous investors are all losers, but that is the risk they take for investing in the market place.

At the same time, the banks get to use the money of savers at bargain basement rates while charging their credit card customers usurious rates.

The low interest rates paid by banks (kept below market value by the Fed) also allows them to issue lots of adjustable rate mortgages (ARMs), since the savings of bank customers is had for virtually nothing.

The same process is at work in the housing market. Artificially low interest rates allow the banks to leverage this pile of cash to offer lots of low interest balloon mortgages (ARM's) which encourages people to pay more for a house than they could otherwise afford, since the monthly payments are so low. When lots of people do this, throw tons of money at a market, the price level for all housing is going to go up, just as with the stock market. The real estate brokers convince the people that they can always sell and "get there money out" since real estate is booming.

It is a racket like the stock market, because at some point you are going to run out of buyers, and then the scheme collapses. The insiders know this and bail out before the collapse.

What is baffling is how many suckers are taken again and again by the same schemes.

[cprompt]

26. very well said

nice post

[lame54]

3. I can't afford a shovel

[SoCalDem]

4. Plastic was the trade-off for real raises...for a whole generation

EZ-Credit, and tons of ever-cheaper shit to buy....made people FEEL like they "had it made"....and kept them from realizing that they were actuially getting poorer and poorer..as long as they could make the payments, they could have it all :(

And now that the "dealer" has them by the neck, and they have no way of getting more income to keep up with the escalating costs of managing their debts, they are desperate..like any good junkie who owes his dealer a shitload of money...

People today forget that people USED to "save up" to buy that new couch or that car.. People used to put coats on layaway ...in July...and pay on it until fall.. They waited for sales..

[Deja Q]

5. *DING* *DING* *DING* You hit the nail on the head.

[Blue_Tires]

8. +1

[flygal]

21. OMG - remember Layaways!

I worked in a woman's dress shop 20 **cough cough** something years ago... and I used to put stuff on layway for myself there. I remember people coming once a month putting what they could and some stuff would stay there for the good part of year - usually a good London Fog coat or coordinate outfit.

Do they even have layaway depts. anymore?

[SoCalDem]

23. Our K-Mart ended their layaway department about 10 yrs ago

My friend used to do her Xmas shopping that way..I used to always buy winter coats that way.. The best ones were on display in July & Aug, but we didn't need a coat until Nov, so why not pay on it every month and have them store it for you:evilgrin:.. My best ever coat ....a "fur" lined (zip in) was a London Fog...creamy beige ..I loved that coat..and I think I paid a couple of hundred dollars for in in the early 70's. My husband would have died if he had known what I really paid for that thing :)... I also bought a charcoal gray wool midi-coat once...loved that one too... (remember midis??)..oooh and knee-high high heeled black leather boots... I was stylin' back then :)... Now I throw on an old sweat shirt left behind from my son's soccer days :)

[My Good Babushka]

6. I call "baloney"

on people who think Americans are just spending frivolously. I know a lot of families (mine included) whose biggest debts are student loans (which was supposed be be "good debt") and medical bills. I guess I should've turned down those pricey MRIs, or delivered my kids in the backyard. Puh-leese. When you're put in a situation where you can choose self-preservation or fiscal solvency, you go with self preservation. Who wants to be the most debt-free guy in the cemetary? Nuts to that.

[JDPriestly]

11. Student loans are a huge problem.

Many young and middle aged people when to school in the trust that they were making an investment. Many of them went back to school when they could not get jobs in fields for which they had been trained. I know a woman in her 60s who has a PhD and constantly takes courses in the hopes of proving to employers that she has the capacity and knowledge to be a valuable employee. Her many job applications are just ignored, lost in the piles of hundreds of applications by younger, less well educated applicants, many of whom were not born in this country and can barely speak American English bur who are nevertheless preferred even for government jobs because they are younger. It is disgraceful.

The worst thing about the Bankruptcy Deform Bill that was passed recently is that it broadened the definition of student loans that cannot be discharged in bankruptcy. That was a terrible, terrible injury to many innocent, well meaning, trusting Americans. Why should student loans be treated any differently from other kinds of loans that are essentially investments. When you get a loan to attend a professional school or get training, you are making a business investment. But you do not get the same kind of tax relief for your investment that you would get if you invested the same amount in a franchise for a hamburger joint. That is not fair.

[Javaman]

17. 75% of all debt in this nation that results in bankruptcy is from medical bills. nt

[4_TN_TITANS]

20. 'Who wants to be the most debt-free guy in the cemetary?'

well spoken! Many families have no choice.

[Liberal_in_LA]

7. horrible. I couldn't even finish reading the article

[TheFarseer]

9. wow, tht's almost 43% of her income going to interest

payments. Even our government is doing better than that, for now. All I can say is Dave Ramsey total money makeover.

[Phoebe Loosinhouse]

12. Smaller credit limits would help

Every time I turn around, my credit card company is upping my limit even though it is unasked for. I think this is temptation that many can't handle.

Another thing many may not know is that while they keep raising your limits, if you actually use too much of the credit, your raiting will be dinged.

I know someone with a credit card limit of about 16,000 on one card. This person, by the way, pays off their account IN FULL, every month. They had a one-time, unusual expense of over $8,000 which they put on the card for convenience only and would pay it off as usual right away. They got a letter from their credit monitoring company telling them they took a ding to their credit rating because their ratio of used to available credit was too high!!!!! Why offer the credit if you penalize people who use it?

[whopis01]

14. Who would you rather make a loan to?

The person who has a $16,000 limit on a card with zero balance or the person who has a $16,000 limit with an $8,000 balance?

Having your credit rating lowered for having a high ratio of used to available credit is not a penalty. It is (in part) a way of trying to make sure people to get too far down a hole that they are digging.

Obviously this isn't the case regarding the person you know. And their credit rating will recover as soon as it the ratio is lowered when they pay it off.

[jtrockville]

15. * sings * You load 16 tons, and whaddaya get?

Another day older and deeper in debt. St. Peter dontcha call me, cuz I can't go. I owe my soul to the company store.

/ cues up BB King's version

[Javaman]

16. One Nation, invisable...nt

[slackmaster]

18. The core problem as I see it is a lack of financial education in schools

The "Home Economics" classes that used to be taught in high schools had almost nothing do do with finance (at least in my town they were basically cooking classes).

Young people enter the real world with no clue about how to manage credit, negotiate a home loan, etc.

[trotsky]

22. Absolutely correct.

Skills that everyone needs, but that no one learns. Of course there are no NCLB tests for personal finance, so schools can't afford to "waste" time teaching them. :mad:

[katty]

19. the hole was practically already dug

[JNelson6563]

24. it's a real mixed bag

I know many struggle under medical debt, I took years to pay off the birth of my son (C-section). I also know many are out there buying a lot of stuff they don't need because they have been thoroughly conditioned to do so.

As one who grew up affluent but spent much of my adult life struggling (long story) I learned the hard way about money. So many feel that every indulgence they are tempted by they "deserve" because they work hard. A simple mindset change would go a long way. When you choose not to make a purchase for the sake of economic practicality you are empowering yourself, not depriving.

I would rather have financial security over a large plasma TV or a new car every year or a big fancy house. There is no shame in that but so many feel if they don't have the newest/greatest/top of the line whatever it's an embarrassment.

Julie