According to a Boston Globe article published on July 20, 2008, that cited information from Dara Duguay, director of Citigroup Inc.’s Office of Financial Education, “high credit-card debt is one of the biggest issues facing consumers” today.  Indeed, the most recent data from Cardtrak.com shows that revolving debt, approximately 85 percent of which is credit card debt, increased in May, with about $5.6 billion in new debt, pushing this type of debt to record-setting, dizzying heights –  $961.8 billion. Americans definitely have issues with debt, but there seems to be a far deeper problem at hand.

With the housing market in shambles, the price of fuel skyrocketing, food costs multiplying, the dollar falling, and an assortment of other serious difficulties plaguing the current economic situation, oddly enough, Reuters recently reported that “U.S. sales of video game hardware and software rose 53 percent in June from a year ago.” Another news outlet said that “the economy may be in the tank, but you wouldn’t know it from the video game market… video games have generated some $8.3 billion in sales, a 36 percent jump from the first half of 2007.”

While certainly every debt overloaded family in America hasn’t been out buying video game equipment, there are many that are conducting their financial affairs with an odd sort of disconnect from fiscal common sense and have been for years, with many Americans spending significantly more they earn in a week, month, a year. A recently published New York Times article detailed an all too typical example of how consumptive consumer spending detached from financial practicality can end up in a massive debt burden that leads to serious financial repercussions, such as foreclosure.

Oddly enough – though, that may be the wrong phrase to use, as the tone seems to be typical these days – the story in the New York Times had a sympathetic undertone to it, one that seems to ascribe to the quite popular bad, evil lenders point of view, a point of view that several government officials publicly appear to share. Many pundits, advocate groups, public officials, and even borrowers, as well as a huge number of media outlets, place a good portion of the blame for the massive, record breaking levels of consumer debt upon lenders. Easy terms, aggressive marketing, predatory lending – these are the reasons that so many Americans spend more than they earn and have little, if anything, set aside for personal savings, according to many. 

While the poor, taken advantage of consumer and the big, bad lender may be the common theme of the day, it very well should be odd that consumers amassing huge debt burdens comprised of mostly non-essential consumer goods and homes that they couldn’t afford without participating in the anti-intellectual delusion that values and prices were going to continue to rise, making refinancing to stay afloat always an option, should enjoy such mass sympathy. Especially when it is going to be their more financially restrained taxpaying co-citizens who will, in the end, be left to foot the bill for the wave of defaults, foreclosures, and bail-outs, as well as suffering severe blows to retirement plans as the turmoil in the economy damages the value of their investments and savings.

And, while we may be well into a wave of foreclosures and defaults, we are nowhere near the end. CNNMoney.com cited data from RealtyTrac in their July 25, 2008 story reporting that “in yet more bad news for U.S. homeowners and the banks that snapped up securities backed by mortgages, RealtyTrac detailed Friday how the foreclosure epidemic is worsening.” According to those figures, foreclosure filings have risen 121 percent over those from this time last year, with 1 in every 171 households receiving some sort of foreclosure related filing during the second quarter of this year. Bear in mind, there are still more loan resets to come and interest rates may soon rise significantly for many, adding fuel to the foreclosure wildfire.

According to Cardtrak.com, credit card delinquencies are on the rise, reaching the highest level in 4 years for first quarter numbers. The Economist published an article recently detailing the difficulties with delinquent debt that American Express is having, stating that “June was particularly ugly: “roll rates”—the number of customers falling from current to 30 days delinquent, or from 30 to 60 days—jumped sharply. Amex’s charge-offs of debt deemed unrecoverable have climbed in a few months from unusually low levels to well above the historic average of 4.8% of balances outstanding. It has scrapped its earnings forecast.” Adding credit cards to their standard charge card offerings has brought them trouble. Charge cards are supposed to be paid off at the end of the month, whereas credit cards are not.

Many try to skew the current credit card problem as being due to the fact of rising fuel and food costs, as well as the other increasing expenses of day-to-day life, people are having to rely on their credit cards just to survive. Well, in many cases, that maybe true, but what may also be true is that they are also carrying large, high interest balances on those cards already due to consumer spending of the nonessential sort – consumptive debt. Consumptive spending habits without regard to saving have brought many to the brink, they simply have nothing whatsoever to back them up in the event of the economically challenging or outright bad times that always do come in the overall economic cycles of the nation and the world.

And, that is why the current situation is so out of control. People, in general, no longer operate in the mindset that would offer some sort of protection during economic downturns. Thrift, sacrificing current wants in order to have some degree of personal savings, the concept of consumptive versus productive debt – these are often viewed as quaint and old-fashioned ways of handling personal finances. Some even find thrift to be dangerous to the nation as a whole, presenting consumption as the cure, spending the nation into prosperity. However, it seems that taking a good look around at the situation today ought to cure those Keynesians of that bit of delusion and encourage people to consider the possibility that putting that big, brand new high-def plasma TV on the credit card may not be a great choice, that they may be better served by making credit and debt for productive, practical, or emergency use only.

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