Perhaps one reason so many American voters tolerate a government drowning in red ink is that the citizens are carrying huge amounts of debt themselves.
Slate took a look at household debt recently, and found that it “remains higher than it was for almost all of postwar history,” despite a significant improvement since the end of the last recession.
Our loads of both mortgage and non-mortgage debt began creeping up in late 2012, and of course student loan debt is blasting into the stratosphere:
“The average household that has credit card debt owes $16,000. That number is $27,000 for auto loans, $48,000 for student loans, and $169,000 for mortgages,” Slate’s review found.
*So, what’s $19 trillion among friends? * MORE:
[…] That’s a lot of debt, especially the credit card and student loan figures. Mortgages and auto loans have relatively low interest rates, and they involve assets with considerable intrinsic value. Homes can appreciate in value, and provide useful equity to the homeowner even when they don’t. Auto loans have fixed end points after a reasonable number of years, and the car has trade-in value toward the next purchase. Homes are necessities, and vehicles usually are. If the loans go bad, financial institutions have a chance of recovering the assets.
Much has been written about the student-loan bubble and the skyrocketing cost of college tuition, which is now socially marketed as a necessity, even though it’s not. Credit-card debt has such high interest rates that consumers can make sizable monthly payments without reducing the principal much. Online shopping has opened new pipelines into those high-interest accounts. Answer honestly: how recently did the reader make an online purchase with a credit card that you probably wouldn’t have made, if it involved going to a brick-and-mortar retail outlet, and/or paying in cash?
Credit cards are easier to obtain, at a younger age, with much higher balances, than they were for previous generations. Student debt loads are much higher, and to be brutally honest, the product they purchase is worth much less. One of the great driving forces behind today’s social and political turmoil is the entirely justified anxiety young people feel about paying huge sums of money for degrees that don’t lead into good jobs, even when the degree isn’t in some useless or actively counter-productive subject. (What employer relishes hiring a young person with minimal work experience, whose college education involved learning to hate businessmen and capitalism?)
The problem with this debt load is the extreme difficulty of paying it off, even for people with stable jobs. That average mortgage payment will be well over a thousand dollars, with taxes and other fees included. The car payments on an average $27,000 loan will be over $300 for most, depending on the terms.
It’s harder to estimate average student loan payments, but a Brookings study in 2014 found that “seventy-five percent of households made payments of less than $300 each month and 50 percent of households made payments of less than $160.” Call it $150, then add $500 a month for minimal credit card, and you’ve got almost $2,000 a month going out the door for loan payments. That would leave most of the credit card balances untouched, while the mortgage and student loan balances would take decades to pay off.
At its core, capitalism assumes responsibility is a vital component of liberty: we are not free, unless we accept responsibility for our actions.
WOW. Can I get an amen? (Seriously.) MORE:
The growing credit crisis will end with government promising to negate responsibility. Those who loaned the money to make so many delightful purchases possible will be castigated as villains, while the statists will offer reductions of their student loan burden as inducements to “vote the right way.” The private sector will be faulted for not offering enough jobs and salary to pay off the student loan burden… by the same people who howl in outrage at the thought of American businesses exerting some control over academic curriculum, to get the kind of employees they really want.
A debt revolt would also help the Left degrade the public’s appreciation for property rights, including loan contracts. Social judgments will replace contract law: those SOBs in the banking industry have made more than enough money from their loans, so they should accept their cramdowns and haircuts in silence.
What cannot continue forever will eventually end. The American credit load is an alarming precursor to crisis. There are many ways to imagine income levels dropping enough to set off the credit bomb, but not many scenarios in which average income surges, borrowing trails off, savings increase, and the debt mountain gets chipped away.
A review of current social and political trends – not just in America, but across the developed world – suggests unsustainable consumer and government debt will end suddenly, and badly, with no good options in sight, and lots of angry questions about why stronger warnings were not issued sooner.