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The Debt Tailspin: Us & Them

Updated on January 28, 2012

The engine that propels the U.S. economy is the consumer. In short, we are a Consumer based economy. That is principally the rationale behind President G.W. Bush encouraging the American people to go shopping after the 911 attacks. American purchasing power is vital to our sustained growth and existence. Presently, the shortage of jobs has created uncertainty; thereby affecting consumer confidence as well as business investment. For those whom have the ‘where with all’ to spend, a noticeable shift has occurred in their behavior. The adaptation of a cautious posture is evident, for fear of joining the ranks of the unemployed. When people are without a source of income, they have a tendency to continue their quest to strive to survive. Put quite simply, without disposable income, the consumer cannot fuel the economy with desires or investment toward their family’s future.

The consumer is focused exclusively on the survival needs aspect of finance. Compounding the problem, joblessness drastically reduces Tax Revenues. When local governments are faced with shortfalls, they cut to the bone. This measure puts our safety and well being at risk when public servants are let go due to austerity budgets. The rationale behind prospective employers hiring is a lack of demand for goods and services within the economy. Hence, ‘The Death Spiral.’ In fact, evidence suggests the American consumer cannot support their basic survival needs from the income of their paycheck alone.

Prior to the collapse of the Housing market, if one was fortunate enough to own a home, they borrowed against the equity thereby fueling the economy. When this no longer was an option, the American consumer felt the need to utilize credit cards to maintain their standard of living. As time goes by, the magnitude of this practice further reduces America’s ability to fuel the economy by means of Consumer Spending. The American family is left with considerably less funds due to exorbitant interest rates charged by credit lenders.

Interesting Credit Card Debt Statistics: Hoffman, Brinker and Roberts Compilation

Among the services rendered by your U.S. Census, in addition to providing the current head count of the United States population is statistics regarding personal debt. The Credit Card Debt carried by individual citizens, according to the 2010 Census, was reported to be in excess of $886 Billion. Based on the information available it was determined to be an equivalent of over $5100 per person on average. The Census projected an increase in the number of card holders as well as the dollar amount to be purchased for the upcoming 2011 year. The estimation of such figures is conservatively expected to exceed $6500 on average per credit card holder. As a Nation, the sum total of Credit Card Debt is expected to top $1.1 Trillion dollars.

Statistics of a recent Consumer Reports survey: source: Consumer Reports Magazine, November 2009)

One-third of Americans do not own a credit card.

54% pay their balance in full each month

33% carry balances up to $10,000 (median balance: $2,254)

13% carry balances over $10,000 (median balance: $17,366)

Based on this survey we are left to draw certain reasonable conclusions. (Feel free to jump in folks; presumptions with respect to human behavior are diverse.)

The first item implies 2/3 of Americans do own a credit card, or more precisely, the credit card owns them. Given the U.S. population exceeds 300 million; one could logically presume 200 million do possess a Credit Card.

46% don’t pay off their balance each month. Therefore I suppose those individuals pay little in finance charges. Still over half do carry a balance thereby paying finance charges.

33% carry up to 10K, 13% over 10K. Based on personal experience, at least 1 of 7 dollars and as much as 1 of 4 dollars goes to finance charges.

Some of the most frequent reasons for those whom carry Credit Card Debt are Underemployment and Unemployment. Other major causative factors are outstanding Medical Expenses, which are closely tied to the lower and middle class. The Federal Reserve maintains 40% of American families are guilty of living beyond their means; or quite simply, spending more than they earn. Another prevalent credit card carrier are college students.

The United States Treasury

So, I was reading a piece in The Daily Crux regarding the sources resulting in the explosion of the national debt. The article outlined the unpaid cost associated with 2 wars, the Part D Prescription Drug Plan, the Bush Tax cuts and the Stimulus for a grand total of $14,000,000,000,000. Interestingly, The U.S. treasury owes $1.6 Trillion to the Federal Reserve. Congressional Representative Ron Paul pointed out the absurdity of this reality, suggesting the Fed could simply ‘cancel the Debt’ thereby reducing it by $1.6 Trillion. In short the Government is borrowing from itself while charging itself interest. Anyway, it’s not going to happen because of the political ramifications of doing so.

The Federal Reserve

The Federal Reserve lends cash via the ‘Discount Window’ to avert financial crisis of lending institutions. In April of 2011, ‘The Blaze’, an online financial blog, reported the following information to Bloomberg News; during the crisis of 2008, the overwhelming majority of Federal Reserve lending went to foreign banks. On March 31, 2011, Fox News Insider with Sheppard Smith stated “We’re learning what banks borrowed Billions; make that Trillions from the federal government during the financial crisis.”

Representative Ron Paul declared his dissatisfaction concerning Discount loans in excess of $75 Billion to foreign banks including France, Scotland, Germany, Japan and China.

“The American people are going to be outraged when they understand what has been going on, What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas? He added. We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”

“The Fed and Chairman Ben Bernanke had fought for two years to keep the information secret, saying it could lead people to think some banks are weaker than they are. But the Fed eventually had to honor a Freedom of Information Act request. ”The Blaze 4/1/2011

The point being, Special Interest groups are represented quite well in Congress; Big Oil, Pharma, Energy, Insurance and on and on. They have the best Lobbyist money can buy, nurturing their desire for more an more and... Suppose the unemployed and Debt laden electorate had comparative representation. A formidable constituency in the tens of Millions essentially would be a game changer leveling the playing field in U.S. politics. Strength in numbers and a platform of justice would bode well in the current political environment. A resolute posture against obstructionism and an authoritative voice endorsing the ‘best interest of the country’ may have constructive unintended consequences.

Although cancelling the U.S. Treasury debt to the Fed is logical, now is the time to send a message to the American people. The message should say, the federal government believes in you and its time we showed you how important we think you are. Here’s the plan:

The Treasury can approach the Fed’s Discount window to invest the trillion dollars it owes. The Treasury stems the tide of further default introducing a maximum amount of $20,000 in low interest loans per household; the program would tender assistance to over 50 Million debt laden households, to be repaid over the period of 10 years. The money would be used to enhance their personal finances through debt reduction (IE: Credit card, Medical bills, Educational Tuition Expenditures, etc.). Repayment of the amount of $2200 per year is divided into a monthly schedule. Utilizing this model works out to $183 per month in contrast to credit card minimum payments often exceeding $500 per month. These credit card practices provide little prospect from escaping this financial vortex of eventual ruin. Indeed, nearly 50% of these payments are applied to finance charges; the net reduction is roughly half.

Moreover, low interest rate balance transfers; unleash previously unrealized disposable income up to $300 per month. A net increase of disposable income of $250 a month, assuming participation of 50 million households, injects a quarter of a billion dollars into the monthly economy. Furthermore, there is a stimulative multiplier effect, increasing the magnitude of economic investment and demand for goods and services, creating enticement for business to hire, thereby pulling us out of the downward Spiral. Additionally, the Treasury collects a net profit of finance charges of 1 Trillion dollars in 10 years.

Of course, this is merely an optimistic fictional scenario. Of Course, Congress would never consider implementing such a proactive plan. Therefore, it’s time to wake up to reality and do all we can. That is, sitting idly by with Great Expectations hoping our government continues to overachieve and reveling in the accomplishments of Congress; specifically, like raising the Debt Ceiling.


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    • gjfalcone profile imageAUTHOR


      6 years ago from Gilbert, Arizona

      ...and so I shall, although I'll have to revise the data...

      Thank you for your support Kathleen, as well as referencing another well respected opinion; FitnezzJim.

    • Kathleen Cochran profile image

      Kathleen Cochran 

      6 years ago from Atlanta, Georgia

      I'm with FitnezzJim. Good to hear some suggestions - not just a rant. Might think about sending this hub to your congressman and senators. You never know. You might hit them on a slow day and some staffer will pass it on to the boss.

    • gjfalcone profile imageAUTHOR


      7 years ago from Gilbert, Arizona

      I support your statement "Money is a joke played on us all." Personally, I would like to start with getting money out of politics.

    • Jed Fisher profile image

      Jed Fisher 

      7 years ago from Oklahoma

      It's much simpler than all that.

      Money is a joke played on us all.

    • gjfalcone profile imageAUTHOR


      7 years ago from Gilbert, Arizona


      Thanks for your kinds words,

      After the third time I read your comment, I found myself conflicted, which always is good, for me. I'm torn between saying,.. At some point our Gov't. needs to invest in the people that it serves.

      The other part of my brain agrees, Your right WBJT, I'm not surprised.

      And finally I'm left with this... There's one thing worse than a Gov't. that loses faith in its people; That's when 'We the People' lose faith in our Gov't.

      Get Out The Vote WBJT


    • WhatBigJohnThinks profile image


      7 years ago

      Good information set in a very easy to read and follow way. Did we think the government would act any different than it people?

    • gjfalcone profile imageAUTHOR


      7 years ago from Gilbert, Arizona

      Thanks for your comments chris.I'm pretty sure unless demand picks up, the downward spiral will continue. One needs only to review the decade as empirical evidence. In the meantime I'll keep working on it. Take care.gjf

    • CHRIS57 profile image


      7 years ago from Northern Germany

      I am impressed. Very well written.

      It is always good to have an analytic approach to find solutions.

      However i think this is a pain reliever only, not curing the real cause. With real cause i mean low productivity of the US, not backed by technological progress. High trade deficits are the symptoms. On the long run every American has to stand in for the ongoing imbalances and has to carry more and more dept. While some people are smart and avoid their personal share, others have even higher than average burdon.

      A drastic example: Every American (from grandma to baby), every day in the year borrows the equivalent of a McDonalds meal from foreign investors, from the world.

      For some people this ends in credit card dept, for some it is housing mortgage load. And some people never eat at McBurgerKFCs.

    • gjfalcone profile imageAUTHOR


      7 years ago from Gilbert, Arizona


      As always I look forward to your input.I haven't decided if proposing solutions accomplishes anything, but its nice to hear appreciation for the effort.In the mean time, keep hubbin'& get out the vote...gjf

    • FitnezzJim profile image


      7 years ago from Fredericksburg, Virginia

      Well written. I have a preference for Hubs that propose solutions, rather than just telling us how bad the other team is. I also like Hubs that present facts, and then offer the reasoning that lead to the authors opinion. This Hub does both.

      That said, I would offer a quick opinion regarding cause and effect, based on impressions developed by watching the last 40 years of politics. The uncertainty comes from not knowing what will be in new laws, and whether they will become long-term or be over-ruled. The hesitancy comes from business desire to leverage themselves into best economic position based on those new laws, and from not being sure what that position should be. It is difficult to discern Cause from Effect when the interactions are cyclically intertwined.


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