Jan 09
Via Carpe Diem who doesn’t know what to say about it.
I guess what it might mean is that when banks fail it hurts more. Oops we already know that. Only .2% have failed, and things suck.
Other than that… all I can say is it seems bad to have 360% more debt than our annual GDP. Don’t know why. Or how. It just seems bad.
January 9th, 2009 at 9:27 am
Average U.S. mortgage plus auto debt is $150K.
Average U.S. household income is $50K.
300% has been the acceptable debt to income ratio for a family for a long time.
It’s obvious that boomer hedonism and government emotional largess for votes have run up an average $25K, at least, of debt for households!
I’d guess the rapid run-up after 1980 is due to more purchases by non-families of suburban houses at grossly inflated prices driven by demand.
Note: The family ratio doesn’t apply as acceptable to the whole shebang.
What’s your guess?
January 9th, 2009 at 9:56 am
I figured increased home “ownership” was a big part of it. It might also reflect bank reserve changes (I believe 8 to 1 to 12 to 1). Emotional willingness to use debt as a tool – both personally and in business.
Don’t know why exactly it is that way. And I’m not sure if it is good or bad. It seems “bad”.
January 9th, 2009 at 11:08 am
I can think of several factors:
1. An American spirit of competition for status as demonstrated by apparent wealth. Veblen’s “conspicuous consumption.” There was an advert running last year of a man listing his wealth and then asking how he could afford it. “I’m up to my ears in debt.”
2. A general weak grasp of quantitative measures and their meaning which tends to simplistic extrapolation and economic gullibility. Perhaps the economic stimulus program could send every household a copy of Flynn’s “Economics for Dummies.”
3. Since America has been seriously prosperous since the late 1940s, it does not want to hear talk of the declining basis of that prosperity. And their politicians don’t want to tell them. YouTube chatter pushes out serious talk until the job losses happen.
4. Commercial advertising sells the good life and the message that you not only can have it, you can also afford it.
5. The use of debt for business investment makes sound economic sense, but the use of debt for a “better life” brings no payback to cover future needs.
6. Buying more house than you needed made economic sense if income was secure, inflation was always positive, government allowed a tax deduction for the interest, and there was always a liquid market for disposing of it when needed.
January 9th, 2009 at 11:18 am
That’s it… YouTube did it.
Your list basically expands into 8 bullets my “emotional willingness to use debt”. I agree with the list mostly. YouTube… sorry, don’t buy it. If you mean “non-elite publishing information” – I definitely don’t buy it.
I expected your #1 to be:
1. George W. Bush
January 9th, 2009 at 9:03 pm
Mea culpa, 3/1 is 200%.