Trendevents: Consumer Installment Debt at All-Time High

Clyde Wilson

1996

Published in:

Social Trends Newsletters, Mar. 1996, No. 145

The Federal Government is not the only one that is feeling the debt crunch. Consumers installment debt has reached the all-time high of about $1 trillion dollars and continues to increase.

The credit availability has contributed to a bleak result; an end to American thrift. While household debt has soared, savings are less than half the level they were in the mid 1980s. The average credit-card debt has reached $3,900, $3,000 more than 1985. And consumer installment debt, excluding home-equity loans and mortgages, is a record 19 percent of after tax income, higher than before the 1990-91 recession.

Consumers are stretching out new and used car loans to seven years, which will mean additional interest costs for the average buyer. Personal bankruptcies are nearly triple the levels of a decade ago, even as a record number of Americans have been seeking credit-counceling service this past year. Delinquencies have risen, and the banks are writing off hundreds of millions of dollars in consumers' installment loans.

If the economy gets worse, loan defaults will continue to soar. And with federal insured banks holding more than $550 billion in consumer debt, that could put the American taxpayer on the hook if the banks go bust. Shades of the S&Ls meltdown when losses wiped out a thousand savings and loans and hundreds of banks, costing the American taxpayer billions and billions of dollars.

The Federal Reserve System has been giving warnings for the banks to watch and tighten up their consumer-lending practices. Banks and other credit issuers have made debt too easy for the consumer. But the last time the federal government slowed credit, the nation came away with a recession, and 1987 brought about another stock-market crash.

Without the creation of mega amounts of debt, this monetary and financial system would fall like a house of cards. Private and public debt is the lubricant that keeps the wheels of the present economy going or from falling into the abyss. When the federal government cannot service its debt, sell or auction off its securities, the day of reckoning will happen.

The problem in the United States is that science and technology has increased production beyond the capacity of the distributive mechanism, and to correct this imbalance, it is the distributive mechanism that must be overhauled or scrapped, not the productive mechanism, and the distributive mechanism happens to be the monetary civilization. (Soddy)

Under the present economic system, it is just as necessary to supply or provide consumers with the wherewithal or purchasing power to enable them to consume what is produced. But the monetary-price system is not designed to cope with the glut of the productive mechanism.

It is no wonder and no accident that the U.S. is the largest debtor nation in the world and has the largest private and public debt of any other nation in the world. Without the creation of debt, where would this economic system be?

Frederick C. Thayer, a visiting professor at George Washington University, in an intensive study of the economic effect of balancing the budget that appeared in the January 1, 1996 issue of ``The Washington Spectator'', found that balancing the budget has resulted in the six real depressions that occurred in the history of the United States, including the Great Depression that started in the crash of 1929. The latter was a depression that continued until World War II.