What is bothering me is the CONTINUES increase in personal debt. The government keeps dropping interest rates in order to fuel purchases. I just don’t understand why people spend and go into debt without ANY ability to pay for it the minute they are out of a job.
Just one instance that I know about. The couple just bought an SUV and their cost is $700 for payments and insurance. That is not bad, but their overall house, cars and “normal” overhead cost is $3,000 per month, before clothes and food. Their income is $3,500 per month net. How are they going to survive if one loses their job for even a month? Their total debt load? Way over $250,000.
Now, if they were an isolated instance, then I could understand, but how many people are like that to some degree. What happens if there is a strong downturn? Can the lending institutions handle such a massive loss? Is anyone
There is always an economic cycle that runs up and down over seven to ten years. It serves to “rebalance” out of whack salaries or over inflated products (like housing). This has NOT happened for a long time in the US. People said there was a mild recession last few years in the states, in reality, it was more like a small hiccup. Spending and borrowing are on the increase AGAIN, massively.
There is the Federal Reserve Board in the US and it's job is to look after the monetary and financial system. It sounds good on paper but in my opinion, it's policies are more for the "what is good for us NOW" with the minimum of pain versus what the US and by extension, Canada needs, for a solid economy.
Case in point? They keep dropping interest rates to keep the spending going but all they are doing is increasing the debt load. What good is that? You have to let some pain work it's way through the system in order to slow down the "borrowed" spending.
It’s going to burst and God help us when it does. It’s going to burst on the personal spending front before the government . And then, just when the government needs to help people, they will be nothing but debt there.
Here is another article along that line.
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Personal Debt Soars to All-Time Record High
ENCINITAS, CA - Are tax rebate checks enough to counter America's growing debt load?
The Economic Growth and Tax Relief Reconciliation Act of 2001, signed into law by President Bush, was designed to encourage spending by mailing tax refund checks to every taxpayer.
However, new figures from the government suggest many of those checks may have to be used to pay off debt.
Debt On the Rise
Numbers released by the Federal Reserve indicate that personal debt, including credit cards, auto loans, and consumer loans, reached a record $1.58 trillion in April. Bankruptcies are on the rise, and write-offs by loan and credit card companies are increasing.
What's even more alarming is the amount of personal income being used to pay off debt. Americans are currently devoting 14.3% of their take-home wages to paying off debt, the highest levels seen since 1986.
What's causing this increase? Some analysts believe that we are now just paying for the excesses of the 1990s. When the markets were bullish, optimism increased, and more consumers took on debt under the assumption they could always pay it back. During good times, it's common for consumers to overextend themselves with credit.
However, as the economy cooled and unemployment has begun to rise, many debtors are now over their head. Savings rates have dwindled, and when a husband or wife is laid off, it becomes even tougher to pay that debt.
Fiscal Policy Threatened
The increasing debt load could serve to counteract President Bush's plan to reinvigorate the economy. Economists have noted that a slowing economy can be improved, and sometimes reversed, by an increase in spending. This might explain why the markets closely watch for the consumer spending figures when they're released every month.
To encourage spending, lawmakers have been pulling out all the stops. The tax rebate checks in the mail, as well as decreases in the Federal Reserve's rate, have all been measures designed specifically to encourage spending.
Excessive debt counteracts those measures, by forcing consumers to devote more resources to paying off their loans. And as the Federal Reserve notes, the amount of personal income heading to loan companies (and not being spent) is the highest it has been in 15 years.
Delinquincies Increase
The amount of debt is increasing, as are the number of individuals currently in default.
Credit card delinquincies, defined as accounts that were 30 days or more past due, have been steadily increasing since 2000. Delinquincies now hover close to 5%, according to CNN, up from 4.3% this time last year.
Mortgage delinquincies are increasing, as well. The Mortgage Bankers Association reports that delinquincies on home loans rose to 4.5% in the fourth quarter of 2000. Fortunately, delinquincies shrunk the first quarter of 2001, but a trend is definitely apparent.
www.savewealth.com/news/0108/personaldebt/~~~~~~~~~~~~~~~~
There is more on this site about personal debt relief but this is not the point of this post.
