American Debt is No Accident

The fact that Americans have allowed themselves to be led down the rosy path of false economic hopes for a rosy tomorrow – where we can borrow now for anything we want with no thought for the fact that we are paying more by mortgaging our futures all the time – is not surprising. What caught my attention are the actual statistics of this fiscal malpractice and the stark proof that our financial institutions are trying to profit by keeping us individually on the brink of financial ruin.

Since the early 1980s, the value of home equity loans outstanding has ballooned to more than $1 trillion from $1 billion . . .

However, what has been a highly lucrative business for banks has become a disaster for many borrowers, who are falling behind on their payments at near record levels and could lose their homes.

The portion of people who have home equity lines more than 30 days past due stands 55 percent above its average since the American Bankers Association began tracking it around 1990; delinquencies on home equity loans are 45 percent higher. Hundreds of thousands are delinquent . . .

None of this would have been possible without a conscious effort by lenders, who have spent billions of dollars in advertising to change the language of home loans and with it Americans’ attitudes toward debt.

Aside from the precise numbers listed above, none of that information should surprise anyone with their eyes open to the economic situation of the country.

It might seem hard to believe, but not long ago people borrowed money to buy a home with the expectation that they would eventually pay off the debt. A mortgage had a finish line. . .

The newly mortgage-free even used to throw mortgage-burning parties to celebrate their financial freedom. . .

Now the idea of paying off the mortgage and owning a home outright is disappearing. . . banks now enable homeowners to keep borrowing. In fact, they encourage it. . .

As a result, the United States has become a nation of half-home owners. For the first time since World War II, the portion of home value that Americans own has fallen to less than 50 percent. In the 1980s, that figure was 70 percent. (emphasis added)

Let me translate that – we now own less of our own homes as a nation than we did 20 years ago. We have sold majority interest in the most valuable piece of property we have to our bankers for the sake of extra stuff which, while often nice to have, does not provide any of life’s necessities (shelter being a necessity while wave-runners, trampolines, nice furniture, and timeshares are not).

If the majority of our citizenry acts that way with their own money, it should not be surprising that our government does the same with public funds. (In the last 40 years, the only time our deficit spending has even tapered off was from 1998 to 2000.) Our public financial blinders have brought us to the attention of Nouriel Roubini:

After analyzing the markets that collapsed in the ’90s, Roubini set out to determine which country’s economy would be the next to succumb to the same pressures. His surprising answer: the United States’. “The United States,” Roubini remembers thinking, “looked like the biggest emerging market of all.” Of course, the United States wasn’t an emerging market; it was (and still is) the largest economy in the world. But Roubini was unnerved by what he saw in the U.S. economy, in particular its 2004 current-account deficit of $600 billion. He began writing extensively about the dangers of that deficit and then branched out, researching the various effects of the credit boom — including the biggest housing bubble in the nation’s history — that began after the Federal Reserve cut rates to close to zero in 2003. Roubini became convinced that the housing bubble was going to pop.

By late 2004 he had started to write about a “nightmare hard landing scenario for the United States.”

Anyone who is uncomfortable with the fallout of private homeowners beginning to default on their mortgages is going to be aghast at the results of the government declaring bankruptcy – and unless we change our thinking we’re going to have to declare bankruptcy – already we are faced with a debt that we are going to hate paying off. If we kept paying our current taxes and the government did nothing but pay debt at 0% interest it would take four years to pay it off and if we kept paying our mandatory spending programs it would take 10 years.

It’s about time our nation put both our public and our private financial houses in order.