Thursday, September 17, 2009
Over the last three decades, American consumers have demonstrated precious little in the way of fiscal responsibility. Rather than adopting a motto of "spend only what you earn" and carrying on the frugality of previous generations, we've witnessed the dawning of an "age of credit." Little plastic cards have promised (and delivered) instant gratification to tens of millions of consumers - only to hit them later with double-digit interest rates, "fine print" which ruins their legitimate borrowing potential and condemns many to a downward cycle of debt and despair.
How bad have things gotten?
In 1980, total consumer credit outstanding stood at less than $400 billion. By 1990, that number had more than doubled to $800 billion. Of course, this increase was nothing compared to the explosion that was to come.
In 1980, the U.S. public debt was "only" $909 billion - or an amount equal to 33.3% of America's gross domestic product (GDP). By 1990, that number had more than tripled to $3.2 trillion - or 55.9% of GDP. Today America finds itself staring down a scarcely-fathomable $14.4 trillion debt that will represent 98.1% of the coming year's projected GDP.
In other words, while consumer debt roughly tripled over the past two decades - government debt has more than quadrupled over that same time period.
What's even more revealing than the irresponsible spending binges that took place during good economic times? How differently consumers and politicians are handling the current recession - which is now entering its twenty-second month. While government continues to spend more money faster than at any time in its history, consumers - for the first time ever - are steadily decreasing their debt.
After experiencing a slight uptick in January, total consumer debt has been dropping like a rock ever since, including a record $21.6 billion decline in July. This drop was five times larger than what economists had predicted, and came on the heels of a $10 billion decline the previous month. In fact, 2009 has seen the first sustained declines in consumer credit since the government started tracking monthly measurements in 1943.
The bottom line is simple: Faced with difficult economic times, consumers are doing what they have to do - spending less and paying down debt at record levels. Government on the other hand has decided to go in precisely the opposite direction - escalating its spending addiction to a level that defies not only common sense, but comprehension.
Clearly, the American public has read the handwriting on the wall and is working to limit its liability in the face of dire economic circumstances. Why is government not doing the same thing?
After all, the contraction of consumer credit is yet another sign that recovery is not as imminent as some Washington politicians would have us believe.
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