Going Down the Path of Consumer Debt – Again « The Washington Independent
Jul 31, 202018 Shares6.1K Views
At creditslips.org, Bob Lawless raises the most reasonable question I’ve seen so far about Treasury Secretary Henry Paulson’s decisionto shift the focus of the government bailout plan to consumers. In an attempt to get credit flowing again, Paulson wants to try to increase the availability of student loans, auto loans and credit cards.
Here’s the question from Lawless, an expert on credit and bankruptcy at the University of Illinois College of Law school: Why?
After two decades in which consumers piled debt on their credit cards without blinking, used their properties like ATMs, failed to save anything for a rainy day and spent in ways that have led to the huge mess in which we now find ourselves – why should we go down that path again?
“„From Lawless:
“„For those of us who grew up in the 1970s, the explosion of consumer debt is one of the greatest social shifts for our generation. Our parents borrowed but only episodically. Homeowners planned for a day when they would pay off the home mortgage and perhaps have a celebration where the mortgage document was burned. We were among the first college students who were able to get credit cards, but credit limits were low. As an undergraduate, I remember getting a Visa card so that I would have it for an emergency and being terrified about possibly being responsible for the $500 debt I could incur on it.
“„We now live in a society where a segment of America is permanently indebted. Although estimates vary, the best available data suggest a little under half of Americans carry a balance on their credit card. Homeowners have borrowed out of their home equity and no longer plan to retire mortgage debt. As a nation, we now over $13 trillion on our credit cards, automobile loans, and home mortgages. Even after adjusting for inflation and the growth in population, that is more than three times the amount owed in 1980.
Lawless isn’t advocating for a return to the 1970s – there are a lot of advantages to the expansion of credit. But instead of trying to spend our way out of an economic slowdown – again – it might be time for consumers to get used to a different lifestyle. Spending less, saving more. True, that means a lower standard of living in may ways. But the alternative is to temporarily address a problem that will only be kicked on to the next generation.
It’s also worth noting that two days after Paulson’s announcement, Citigroup said it planned to raiseinterest rates on its credit cards.
Hajra Shannon
Reviewer
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