American Debt

This weekend, the NYT goes chart crazy in — "A series about the surge in consumer debt and the lenders who made it possible" — looking at the economy, debt, housing, etc. 

Now, the real question is whether this is a one off, or if the NYTimes is going to give Rupert Murdoch’s new, softer, de-financialized Wall Street Journal a run for its money.


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Click for interactive media
American_debt

via the NYT


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Previously:
Murdoch’s WSJ Changes Creates Opening for NYT, FT
http://bigpicture.typepad.com/comments/2008/04/murdochs-wsj-cr.html

Series:
Given a Shovel, Americans Dig Deeper Into Debt   
GRETCHEN MORGENSON
NYT, July 20, 2008
http://www.nytimes.com/2008/07/20/business/20debt.html

Uncomfortable Answers to Questions on the Economy   
PETER S. GOODMAN   
NYT, July 19, 2008   
http://www.nytimes.com/2008/07/19/business/economy/19econ.html

Borrowers and Bankers: A Great Divide   
GRETCHEN MORGENSON
NYT,  July 20, 2008
http://www.nytimes.com/2008/07/20/business/economy/20gret.html

Too Big to Fail?    
PETER S. GOODMAN
NYT,  July 20, 2008   
http://www.nytimes.com/2008/07/20/weekinreview/20goodman.html

Work Out Problems With Lenders? Try to Find Them
GRETCHEN MORGENSON
NYT, July 20, 2008 
http://www.nytimes.com/2008/07/20/business/20debtside.html

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What's been said:

Discussions found on the web:
  1. mind commented on Jul 20

    Never had a car loan. Never had a mortgage – paid cash for the house. Never had credit card debt that wasn’t paid off in total each month. I recommend this lifestyle!

  2. Mark Harding commented on Jul 20

    Barry never has a day off – does he sleep ?

  3. Todd commented on Jul 20

    One of the reasons I feel the US economy is in a secular bear market is the proliferation of debt, both personal and on the federal government level. Taking on debt seems to be so culturally ingrained in our society that it becomes an addiction that may be as tough to kick as alcohol or tobacco.

    The values of the family you are born into shapes the person someone becomes as an adult. If the parents are serial borrow-and-spenders the chances of the children becoming the same is rather large. Getting credit cards at 18 and maxing them out, keeping up with all your friends and family, making sure you have all the clothes, cars and toys all your peers have – all symptomatic of this syndrome. And, there is no attempt at educating kids in high school to the nitemare of living your life in massive debt. The federal government sets the worst example for it’s citizens to follow.

    Me, I was so very lucky to have been born to parents who lived through the Depression and that experience served as a reminder to them to never live over their means. As a result, I have their values and credit card debt always was a foreign concept to me.

  4. Steve Barry commented on Jul 20

    Great post Barry. Here is my favorite chart from the piece. We can learn a lot from it. First, the severity of the problem which looks mind-boggling. Then the fact that it has been basically growing like a cancer for 60 freaking years (you can blame every administration and Fed chairman besides Volcker). Next, even if you ignore every single bad mortgage, we are still way into too much debt per household (which augurs very poorly, as Roubini argues, that the crisis is almost over).

    What really angers me is that if we had a business media (an anti-CNBC) that kept our policy makers in line with pieces such as this, this could have been avoided. Unfortunately it looks to be about 30 years too late. That’s why I have such contempt for CNBC. BTW, hat tip to those that saw this coming years ago, like the boys at Comstock Funds.

  5. Rich Shinnick commented on Jul 20

    And from this debt saturated starting position we are supposed to take off in to new economic prosperity?

    I don’t know, it is sort of like expecting our U.S. Olympic Swimmers to win races with 150 pound lead weights on their backs. On your marks, get set, GO!

    I guess to believe in a recovery, you need to believe this chart can either 1)Increase forever, 2) Suddenly shift direction and still have the economy grow.

    How exactly can that happen?

    Unfortunately, in the United States debt is food.

  6. DownSouth commented on Jul 20

    If one reads today´s NYT´s editorial it seems to be all gung ho for big bank bailouts. Bear Stearns had to be bailed out because the distress might have spread to other banks.

    Freddie and Fannie also MUST be bailed out, because they are too big to fail.

    I wonder, is the United States govenment too big to fail?

  7. rexl commented on Jul 20

    people are surprised consumers live beyond their means with credit cards but what other purpose does a credit card provide over a debit card??
    would not consumers be better served with small defined loans that have to be paid off.
    also in the article on ms. McLeod, on pg. two it says the Fed Reserve recently put into effect rules barring the lender from making loans without checking the borrowers ability to repay the loan.
    you mean, the fed had to make that a rule? what the hell is a banker’s job, why not just have a big bag of cash and stand outside handing it out, o that’s right that is pretty much what they have been doing.
    also a harvard professor studied the situation and discovered that the bankruptcy laws benefitted the credit card companies. again, no shit. who wrote them?
    who lobbied for them? is this news?

  8. Shane commented on Jul 20

    Just as we are in a consume/spend/get into debt mode, I’m sure the cycle will revert itself to save/stay out of debt mode. Debt/credit can be very useful, or extremely harmful.

    Example 1) I just took a family trip, put everything on the Discover card, for the month of July I received 5% back on gas/travel/groceries. I just saved 5% on my vacation. I didn’t spend anymore than I would have had I paid in cash or by debit. I will pay off the balance when the bill is due.

    Example 2) 0% when you have the resources to pay it off in full at anytime while it is debt, it’s sort of not-provided you keep it that way (i.e. put the money in CDs, etc).

    Debt/credit can be extremely useful, or very dangerous depending on how you use it. Unfortunately most people are idiots when it comes to money and get themselves in trouble.

    I can really only see one of 2 outcomes, both extremely bad. 1) Debt default, ala Argentina 2001, 2) High inflation/Hyperinflation to pay off debts.

    People seem to forget that in the Great Depression Roosevelt devalued the dollar in 1933 and inflation started again.

  9. DL commented on Jul 20

    I agree that consumer debt is a problem, and all of this debt will exacerbate the economic downturn. However, the chart shown above exaggerates the seriousness of the consumer debt problem by displaying absolute numbers, rather than relative numbers. A different picture would emerge if one were to plot a ratio of X/Y versus time, where “X” is total consumer debt and “Y” is the sum of all consumer assets plus aggregate annual consumer incomes. The chart wouldn’t look as bad then.

  10. John Thompson commented on Jul 20

    To “mind”:

    Must be nice to not have to get student loans. It’s awful great having good income.

    What’s your point. Rubbing it in?

  11. donna commented on Jul 20

    When the Fed encourages debt over savings what else can we expect? Why save money at such a small rate of interest when we’re losing it’s value to inflation faster than we can even spend it? My 3% money markets are safe, but still losing real value.

  12. rexl commented on Jul 20

    shane, yeah, we pay our credit cards off too each month and our house has no mortgage. i do not need to massage my ego thinking i am so much smarter than the ‘idiots’, we just have more money. you and i are not the kind of people the credit card companies are after and they pay the advertising. who pays for psa’s on responsible use of credit? no one. so let’s me and you just sit back and pat eachother on the back because we are such a pair of swells, eh.

  13. Francois commented on Jul 20

    We can reduce our debt burden. We just refuse to do what ought to be done.

    1) True universal health care. The amount of resources WASTED just to maintain the illusion of a free market is staggering. For those who want to spew ayatollah-like politico-ideo-religious drivel on that one can take a hike to Alpha Centauri NOW. I ain’t gonna acknowledge, let alone reply to it. I’m making a statement, not starting an argument.

    2) 700 billions…per year. This is what we send abroad to indulge in our addiction to oil. We can reduce this amount…if we truly want to. Do we?

    3) I still fail to see how so many tax cuts and loopholes favoring the wealthy are of any benefit for the nation at large. On the other hand, we have a crumbling infrastructure that must be upgraded anyway. (It’s called an investment) So, who are we gonna choose? Us, as in We, The People, or just the fattest cats?

    4) If education is so important to the New Economy, (or is it the New New Economy?) why is it that families have to shoulder an ever-increasing financial burden to get it? As in infrastructure, education is an investment. WTF is wrong with us? Have we become so obtuse that the word investment has been reduced to trading blips on a screen with a goal of making x% of profits/month?

    5) Public finance campaign…for all. That is another kind of investment, this time in the leadership we choose. We pay for them, thus they got to listen.

    Right now, they listen to those to finance them and it ain’t us, the people. And we get what we pay for, don’t we? The last 8 years should serve as a good lesson on this topic…provided we accept to open our eyes, process the evidence and draw the lessons.

    Unless we want to go through the whole nightmare again.

  14. Michael Comeau commented on Jul 20

    I think we’re going to have to get used to the fact that Americans will be forced to reduce their standard of living. We just can’t afford the status quo.

  15. anon commented on Jul 20

    Given its mass intelligence and influence, the NYT was in a position to stop the madness that flourished over the last 30 years. It was not part of the solution. It was part of the problem. Running a series on debt, now? If you don’t want to cry, you have to laugh.

  16. Mark E Hoffer commented on Jul 20

    presages the implied threat: more Gov;’t Debt and spending or no more ‘Personal’ credit.

  17. Andy Tabbo commented on Jul 20

    If you ever need to explain to someone what the “problem” is….just show that chart. It encapsulates some important issues. It explains the mania in house prices this decade…it explains the “bull market” between 2002-2007…and it explains why we have some very, very difficult times ahead, as individuals deal with insolvency.

    I wonder why $122K in debt was the tipping point? That must be 2-2.5X median income. The critical factor is probably the “free operating cash” flow of the individual. Having $122K in debt isn’t an issue if you have the excess cash flow to fund the debt or “assets” to back the debt or the debt can be financed cheaply.

    I think the breaking point was the inflationary issues v. stagnant income growth. Individuals no longer had the excess cash flow because of the inflation tax. Unfortunately, it coincided with the peaking of the 18-20 yr real estate cycle, which is leading to lower asset values to back the debt. Which, all leads to a credit crunch. Who wants to lend money to people that are insolvent?

    It’s going to be a rough go America. You need to get back to work. Stop buying shit you don’t need, and start producing crap other people think they need.

    – AT

  18. Shane commented on Jul 20

    Wow . . .rexl . . .
    I’m not saying I’m “better” than they are. Most people currently don’t know how to manage money . . . they spend it, throw it away on frivolous pursuits, etc.

    I didn’t say they are idiots . . . I said “idiots when it comes to money” . . . big difference. I’ve know many, intelligent people who make a heck of a lot more than I do, that are way smarter than I am, but they are idiots when it come to money. They have NO IDEA how to budget, pay off bills on time, how to determine a need vs. a want.

    If people where smart with money, then why does Suzie Ozman make so much money with the books and advice she gives? She doesn’t tell you the secret to life, she just give basic common sense financial advice. A huge portion of Americans either, a) don’t have it or b) never learned it.

    If people weren’t idiots with regards to money we wouldn’t be in the mess we are in today! If people just stepped back and thought . . . hmmmmm I make 60k, how in !@#!$ am I going to pay for a 350k house?

    rexl, let me clue you in . . . I’m not rich, I make right at the med. family income for my area, but I’m more well off than many, not b/c I make more but b/c for whatever reason, either naturally-born or taught, or learned, I know how to manage my money. I did say manage not “invest”. I’m not where I’m at b/c of investments, it’s b/c I know how to save, I know how to budget, I know how to have discipline with finances. Most people have no discipline with money.

    Currently that is the way things are. Over time it can change. Over the past 50 years more and more people have no clue how to manage money, there was a time when the public was very, very smart and savvy with money. Today the public is a dunce. There will always be some segment of society who fritters away wealth but I believe most of the lack of knowledge and stupidity about money that currently pervades the common public is due to the lack of parents teaching children about money, and not just knowledge but practical applications. The “have it now” generation, etc. Parents buying their kids new cars, cell phones, paying for college, etc. It breads a systemic appalling lack of responsibility with money.

    No, some people are born with an understanding of money, most are taught it. Right now, there are very few that actually understand it, hence many are idiots with regards to money.

    Or maybe you are just criticizing me, portraying me as an elitist b/c of the use of the word “idiot”. What word would you use? Not smart, unwise, imprudent, foolish, etc. Give me a break.

  19. drey commented on Jul 20

    “People are surprised consumers live beyond their means with credit cards but what other purpose does a credit card provide over a debit card??”

    Uh, convenience perhaps? I don’t walk around with a briefcase full of cash personally, but that’s just me…

    Slightly OT but is anyone else as PO’d by those hard to click thru full page NYT ads as I am? I’m about ready de-bookmark the Times – that’ll show ’em!

  20. Matthew Rafat commented on Jul 20

    The real question is whether the NYT will start to seriously think about going private after its earnings release on July 23. At 12 bucks a share with a nice dividend, why can’t the NYT sustain itself as a public corporation when it has such unique, fun content?

  21. Jagmohan Swain commented on Jul 20

    I think proliferation of consumer credit provides the same effect that unemployment insurance provides for job seekers.It provides a cushion in bad times.People aren’t fools.Some are, most aren’t.If we were we would still be roaming around naked, in caves like the Neanderthals.We can safely assume that majority will take a sound decision with the credit that is available to them.

    In fact the beneficial effect of consumer credit means that downturn would be short and shallow if it’s said to be a consumer-led recession and not business-led recession.

    The entire theory that consumer will cut back and lead to a vicious feed back loop for economy simply isn’t happening as demonstrated by y-o-y growth in retail sales.Consumer credit plays a significant role in propping up the demand in bad times.

    With rising population gross household debt is only expected to rise.But so has the assets and at a higher pace.So I don’t see
    any doomsday scenario materializing any time soon.

    I continue to be bullish and playing on the long side, short term fluctuations aside.

  22. rexl commented on Jul 20

    shane, this financial debacle has been ‘engineered’ by people who are very ‘smart’ when it comes to money.
    i think the system is rigged in the ‘houses’ favor along with a large dose of ‘there but for the grace of god,…’
    if everyone only used their credit cards to make 5% on vacations there would not be credit cards for long.
    if you stop and think about them, what reason except for emergencies is there for credit cards over say debit cards? we use ours for convenience, but we could use a debit card.
    also, i am saying these are more of the issues that separate us from rising up as ‘we the people’, as in ‘we are sick and tired, and we aren’t going to take it anymore.”
    we now expect everyone to be smart about money regardless of what else they do and are smart about? thus the privatization which often means the ‘you’re on your own’ of most pensions, 401’s versus standard pensions. so what ever else you were expert at, now you are also expected to be accountant/stockbroker/investor or else regardless you are an ‘idiot’ at the important stuff.
    excuse me if I offended you but I feel our culture is spending way too much time and effort on beating a dead horse under the rubric of ‘financial planning’ and not enough on the myriad of other pursuits of happiness a more healthy society would be pursuing, and I am most guilty of this, Shane.
    again, i apologize, if the words were of the wrong temper.

  23. rexl commented on Jul 20

    Tanta at Calculated Risk has a very interesting breakdown of these issues today titled Duelling Discourse of Debt.

  24. OkieLawyer commented on Jul 20

    Barry:

    Francois and I think a lot alike.

    This issue is the issue that I have been harping on for the last 2+ years. It is the one element that will make the coming recession far worse than predicted. There is no way for us to borrow our way out of it. The answer is to get back to work building things. That is going to require more government spending as private companies cannot — or will not — invest in needed technologies and infrastructure.

    This could not come at a worse time. It will be necessary to raise tax rates and close loopholes at the very time that the economy is heading downward, which will probably have a negative effect on any potential economic recovery in the short term. But before political conservatives scream about how awful this is, they should keep in mind that this is the natural result of “borrow and spend” fiscal policy.

    Drown our government in a bathtub, indeed.

  25. Mace commented on Jul 20

    “I can really only see one of 2 outcomes, both extremely bad. 1) Debt default, ala Argentina 2001, 2) High inflation/Hyperinflation to pay off debts.”

    I couldn’t agree more and I’d have to choose #2 as the likely future course. As we all know, inflation is a debtor’s best friend and I can guarantee you that politicians will pursue inflation as it will help them win elections.

    The problem, of course, is that those of us who have lived frugally and are debt-free will be totally wiped out by inflation. It will destroy the middle class and send a message that only dopes save money. This will signal the end of our country.

  26. Shane commented on Jul 20

    rexl,
    I had a really nice response, but it was flagged as “spam” . . . ugh.

    Mace,
    I’ve been following the deflation/inflation debate for quite some time. I think both camps are partially wrong. I call for bi-flation. Massive price deflation in houses/stocks/assets and massive price inflation in commodities and just about everything else.

    Overall I believe you have monetary deflation, however as the gov. pumps more and more money NEW money into the system to stave off deflation in debts it will only cause inflation in the stuff they don’t want (i.e. commodities and consumer stuff, day-to-day living).

    Oh, and I call BS on the whole “can’t have inflation without rising wages” crap. Oh YES YOU CAN, it’s call a REDUCTION IN THE STANDARD OF LIVING.

    Whether the final outcome of #1 or #2 is really inconsequential as either way there will be hell to pay. My only hope is that we come out of it with our freedoms intact, i.e. for the love of all that is good not another FDR-closest thing we’ve had to a dictator in this country.

  27. Money Minds commented on Jul 20

    Shane,

    Great comments! I agree that we as consumers are partly to blame for these trying economic times. I think financial literacy should be taught in Grammar School, High School, and College. If you are not getting a major in Business, you are not even getting this much needed knowledge even in college. Why I said partly to blame is because those consumers that fell prey to the banking institutions bought on emotion and trusted licensed professionals. Again, I agree that common sense should have kicked in—60K/year doesn’t equal a 350k home, but they were trusting someone that a higher licensing authority said they could trust.

    Another problem is you can give people solutions, but they want would they want, not want they need as you stated.

  28. Greg Toussaint commented on Jul 20

    Sorry, I hit my back button and my post is showing up twice.

  29. Greg0658 commented on Jul 20

    Shane – “had nice response, but it was flagged as spam”

    next time save the text in a plain jane text editor like NotePad and reopen the file and copy/paste

    I found it strips the text of extras and works / or you had a word that was not allowed (like what you do in Vegas)

  30. MouseJunior commented on Jul 21

    if you stop and think about them, what reason except for emergencies is there for credit cards over say debit cards?

    Where to start?

    1) security: I prefer not to have to type my PIN number into a whole bunch of machines I know nothing about
    2) limited liability: if the number is stolen and used by an identity thief, I don’t lose my emergency money
    3) online shopping: can’t use a debit card on line, but my bank lets me create one-off credit card numbers for single uses at small retailers who may or may not be trustworthy
    4) tracking spending: I put all my food/gas/misc expenditures on one card so I can see what I’m spending where, and how much of my monthly float I’ve used; it’s much easier than trying to extract it from my chequebook which has other stuff scattered in
    5) discounts: my card gets me discounts/cash back (however you prefer to think about it) on everything I buy
    6) reservations: can’t reserve cars/hotels/etc with a debit card

    Credit cards are tools, like anything else. The fact that some people are irresponsible with credit doesn’t mean the rest of us should have to suffer for it, in the same way that just because some people are too stupid to get their hair cut/wear it up doesn’t mean that lathes should be banned.

  31. Todd commented on Jul 21

    Interesting discourse, especially when you consider that Bush wanted to privatize Social Security. Just imagine what a debacle that would turn out to be with the average financial IQ of Joe and Jane Sixpack.

    I think McSame is for that, too, or am I wrong about that?

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