Consumer Debt-cutting

There is at least some good news on the personal finance front.

Increases in “consumer debt” — defined as total revolving and non-revolving personal debt — are being more than offset by decreases in mortgage and credit card debt.  As a result, total personal debt is declining (see U.S. Debt Clock).

It would appear that the heyday of profligate personal spending is giving way to at least some vestige of fiscal sanity.

We are now looking at 17 consecutive months of declines in total consumer debt outstanding, and, while the amount is not huge relative to the $2.45 trillion owed, that 17-month string is a run of declines not seen in the 67 years that the Federal Reserve has tracked that statistic.

In a recent conversation, one woman commented, “Our family is now debt-free.  We paid off the last of our credit cards about six months ago.  It feels great . . . ”

This writer asked, “Does that include your mortgage?”  Her response: “No, we don’t count that, because if we didn’t have a mortgage, we’d still have rent payments.  But we have no car payments, or department store bills, or credit card bills looming over us each month.  It is a fantastic feeling . . . ”

Whether Washington gets on the bandwagon with its citizens remains to be seen.

Time will tell whether this changed mindset among citizens will translate into specific outcomes in the November elections.

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3 Comments
  1. Minnetonka says:

    Congress took all those savings and spent them. If it hadn’t done that the economy would have gotten smaller, but low interest rates can take up a lot of the slack. And we can’t run deficits forever.

    We’re way past priming the pump. Now we’re just pumping up the economy, in the most inefficient way you can imagine.

    Reply
  2. Your observation about the economy getting smaller is a good point.

    In the 1980s, the SEC stepped in and fined a publicly-held company for representing production data as sales data (units were shipped from the assembly line to the distribution warehouse, and were booked in public documents as units sold).

    The ultimate questions were, Whom was the company deceiving, and Whom were they hurting most, the stockholders, or themselves?

    In the final analysis, they hurt themselves more, because they represented sales as being more robust than they actually were, and the company ultimately had to correct their sales numbers – in a very public way — to reflect reality.

    So, too, with government spending to artificially improve the economy. Just as water must find its own natural level, eventually, the economy must correct itself to its natural level, when the “stimulus” spending ends.

    As you observe, eventually those debts will have to be paid back.

    And correcting that debt problem likewise is being done in a very public way.

    Observation from a co-worker: There is no such thing as a vacation. It’s just a work deferral program (i.e., it’s waiting for you when you return).

    Ditto with the hard cost of paying for government’s deficit spending: borrowing and printing both hit down the road, and are much more expensive than having government living within its means.

    The cause, just as with personal debt, is due to the cost of money.

    Caveat to government: the Hippocratic oath reminds us, “First, do no harm.”

    Reply
  3. Michael Smith says:

    The comparison of national spending and budgets to family spending is apt. What is a nation, if not a large number of families sharing a chunk of real estate?

    People instinctively understand that their families can’t spend more money than they make, and if they do, it’s a temporary situation made possible by a creditor. It’s not forever.

    Somewhere along the way, we lost sight of this common-sense rule as it pertains to government. Surely, the huge flow of foreign capital into our treasury had something to do with it. As did the entirely human desire to get something for nothing–a desire stoked by politicians who advance their careers by promising something for nothing.

    But even a widely held fantasy is still a fantasy. I think Americans are waking up–not a moment too soon.

    Reply
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