Consumers Swimming in Debt

The average consumer is swimming in debt and the situation is not getting much better. And yet our Federal Government is borrowing at a record pace, thus making the problem much worse.

IT’S one of the toughest lessons an investor has to learn: while the value of assets can plummet posthaste, it takes forever to shrink the debt that was used to buy them.

Last week, this harsh truth was made clear yet again, in a report on consumers’ financial well-being by the Federal Reserve Bank of New York. The first of a Fed series to be published quarterly on household debt and credit, the 38-page report shows just how tapped out the consumer remains three years after the borrowing bubble burst.

To be sure, the data indicates that consumers are doing what they can to kick their debt habits. But the process is slow.

For example, total consumer debt stood at $11.7 trillion on June 30, down just 6.5 percent from its peak in the third quarter of 2008. The number of open credit card accounts was down considerably — 23.2 percent — from the highs reached during the second quarter of 2008, while mortgage obligations have fallen 6.4 percent from the peak that was seen almost two years ago.

Many consumers, though, are still very much in a vise. Halfway through this year, 11.4 percent of outstanding consumer debt was delinquent, up slightly from 11.2 percent a year earlier. An astonishing $1.3 trillion of consumer debt is delinquent, with $986 billion seriously so — 90 days late and counting. While delinquent balances are down by about 3 percent from the same period last year, serious delinquencies are up a bit more — 3.1 percent.

Here are some other troubling statistics from the Fed: a half-million people had a foreclosure added to their credit reports between March 31 and June 30, an increase of 8.7 percent over the first quarter of the year. And the numbers of consumers with new bankruptcies appearing on their credit reports rose 34 percent during the quarter, to 621,000. That increase is significantly bigger than it has been in the last few years, according to the Fed.

Per capita debt balances are staggering, as well — and for many consumers, the assets underpinning these obligations have collapsed. Reflecting the heavy burden that mortgages represent for most consumers, these debts are highest in states where the real estate mania went craziest. In California, for example, the average per capita debt balance among consumers with a credit report is $78,000, the Fed said; in Nevada, it is $73,000. The nationwide average is $49,000.

Average per capita debt is $49,000 and new backruptcies are up 34% ... wow. At the same time, the socialists in charge in Washington want to keep deficit spending at a massive pace, hoping that digging the debt hole even deeper will help things.

This is like an alcoholic trying to drink themselves sober, a morbidly obese person trying to eat themselves thin. It makes absolutely no sense and is laughable on the face of it.

What do you do when you overspend and get into debt trouble? You cut back on expenses, live within your means and pay of the debt as best you can and try to increase your income by working extra hours if possible until your finances are healthy again.

Yet the powers to be in Washington still think that massive deficit spending is the way to go.

Want to know what our future looks like with the socialists in charge? Go look at Zimbabwe.