Our increasing debt (national & private) may result in our economic decline.

I’m just looking for any feedback and your thoughts on the overwhelming debt that we, as a nation, have gotten ourselves into and the potential for a nation-wide economic downturn. I’m talking about record levels of debt never before seen and no indication as to how it’s going to be overcome, can it really just keep getting pushed forward? Can our financial and government institutions just ignore it and remain afloat? Can we even handle our personal debts?

First, a recent funny (or not?) commercial you may have seen:
http://youtube.com/watch?v=hn5EP9StlVA

Second, a short SNL clip:
http://youtube.com/watch?v=aIm8Mfo4_Fk

Third, an article below, which is an excerpt from a book review on amazon.com for “Empire of Debt: The Rise of an Epic Financial Crisis” by William Bonner, Addison Wiggin. The full review along with others can be found at the following address:
http://www.amazon.com/gp/product/customer-reviews/0471739022

Excerpt:
...Bonner and Wiggin also see a parallel between the British Empire at the beginning of the twentieth century and the American Empire at the beginning of the twenty-first. A hundred years ago, the British Empire had become moribund and was going increasingly into debt to the then economically vigorous United States, especially to fund its participation in the Great War. (Indeed, the authors suggest that Wilson sided with the British not because they were more democratic but because they owed us more, and Wilson wanted to make sure that debt could be repaid.) Now, the economy of the American Empire has stagnated as it becomes increasingly indebted to the new global economic engine, China. There are many reasons why China is growing while America stalls, but one important reason has to do with the fact that “Asian workers are younger and cheaper” (p. 233). As a frequent traveler to China over the last sixteen years, I have witnessed firsthand China’s unfolding economic miracle. Its people are young, well-educated and ambitious; they are determined to make themselves wealthy and their country the world’s next superpower.

However, the American economy is not simply being bogged down by an aging population; it is also being destroyed by a collective delusion that debt does not matter. As Bonner and Wiggin point out, “America’s empire of debt rests on many huge deceptions,” such as that “the rest of the world will take American IOUs forever” and that “domestic savings and capital investment are no longer necessary” to maintain the economy (p. 290). Instead of saving, the typical American family takes out home equity loans, thinking that the rising values of their houses means that they are getting richer. Thus, Americans use creative financing and “the savings of poor people in foreign countries” (p. 285) to maintain a standard of living they cannot afford. Nevertheless, this debt will eventually have to be repaid. “For what is a national debt,” the authors observe, “but an intergenerational obligation, a burden placed on infants by their parents and grandparents” (p. 200). The revelers may claim that tomorrow will never come, but those who have remained sober (and solvent) can see that there are major problems ahead for the United States.

It may be too late to turn the United States from economic decline; its people seem to lack the willpower and the foresight. However, that does not mean that individual Americans are doomed to financial despondency, as long as they are willing to face certain facts. Bonner and Wiggin emphasize that you always have to work to make money, either by selling your labor or by putting in many hours learning about good companies to invest in wisely. Furthermore, you do not get rich by playing the stock market; instead, the authors argue, “you get rich by buying companies at good prices, holding them for a long time, and not spending your money” (p. 309). This sounds exactly like the kind of advice that my grandparents would have given.

Lastly, a yahoo article on American debt:
http://finance.yahoo.com/columnist/article/moneyhappy/2643

Chicken Smith View:

Now I, like everyone else, don’t know for sure what’s coming, but if you have any theories, pro or con, please share them with me, as I’d hate to see our economy/dollar go down on account that we (as a nation) are all just living off credit and our house of cards doesn’t seem like it can get stacked any higher.

Some semi-related links (don’t discount these as loony sites, as most reference their sources):
http://www.bloomberg.com/apps/news?pid=10000039&sid=an34gK1QCS.Q
http://www.realestatedecline.com
http://www.dollarcollapse.com

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3 Responses to Our increasing debt (national & private) may result in our economic decline.

  1. daren says:

    I am glad to have discovered this site! Great reading, and links to interesting things i’ve not found otherwise. With all my googling for writings on macroeconomics, the housing bubble, and international debts, how did i miss this one?

    The SNL skit is hilarious, but apparently a necessary bit of education for most americans. sheesh, really, from what i’ve been reading the last 15 years or so, a lot of people really do think like that silly couple. OTOH, i could have written the book.

    Long ago, even in high school in the 70’s, i concluded that debt was bad, saving in any form is good, I figured on living without ever getting into debt. One credit card served for purposes such as buying clothes, lamps, whatever without having to carry around a wad of stealable cash. No long term debt, only short one or two month balances. I even got through grad school without any significant debt.

    So far so good, until the 90’s arrived. Somehow something shifted, jobs even in high tech became less reliable, and also for various reasons i explored career changes, running my own business, and other ways of departing from the usual rat race lifestyle. Some modest debts built up. Working in software development, i had been severely underpaid but finally landed a decent job at a what you could call a fortune 10 company, a certain very large manufacturer. Debts went away. I laughed at all the silly people paying for fancy cars and TVs and vacations with not-really-money. My furniture was beat-up old junk friends gave me out of their garages, or acquired at yard sales. BTW, yard sales in most parts of Oakland County Michigan were often worth checking out, as a nonzero percentage had worthy stuff. Yard sales in Fort Collins or Boulder almost always offer just junk. Some PhD student could do a study on the geography/demographics of yard sales or something.

    Anyway, not until i moved to Colorado with my (at the time) fiance and looked for a house, did things go different. We had moved because i landed a juicy high tech job making plenty $$$. They were not a “dot com” but unfortunately many of their customers were, or had in turn many customers who were. Hardly two months after the move my employer dropped a whole product line and laid off me and the other new guy. The years 2001-2002 were strange times, making less money with more volatility in income and outgo. No foolish purchases, but survival, required running up debts. At least the mortgage we had was not a stupid ARM. I am still digging out from the debts, but getting close to done.

    Some people are better off than I, and some are worse, far worse, off. One can be like that 1-page book author, or like the silly couple.

  2. chickensmith says:

    Sometimes things do get out of hand. I went through a similar situation in 2001. I had recently moved to Boston from New York (call me crazy) and then promptly got laid off my IT job which depended partly on dot coms.

    After having always worked in office jobs, I finally learned what it meant to be Joe-Six-Pack when I had to take on jobs as a bus-boy, bouncer, bar-back, and waiter to stay afloat. Pride didn’t let me seek unemployment benefits or friends for favors, so when things got really bad, everything started going on credit cards, even the rent and the Ramen noodles! I kept moving every few months everytime I found a cheaper place to rent, which usually meant sharing an apartment with more people.

    Things eventually improved and I was able to get out of that hole, but the experience has re-shaped my outlook on financial management and the idea of working for “the man”. Seeing so many people (those at the bottom and especially those in the “middle”) in debt and not being the least bit concerned shows a sad state of affairs in our society today.

    We’re all frogs in a steadily warming pot. We’re now witnessing several

    economic bubbles (housing, credit, stock market, dollar) that are about to reach their boiling point and will burst soon. Although we don’t know exactly when this will happen, the more prepared you are, the better.

  3. A scary little fact that some people may not be aware of is that last year in 2006 the credit card industry made a whopping 17 billion dollars in late and over the limit fees alone. Not to mention the billions upon billions more they made by charging very high interest rates. They truly do have a debt empire and it is sucking our great country dry. And to make things worse the people in congress arne’t doing anything about it.

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