Thursday, March 20, 2008

American Debt

What BusinessWeek is calling "The World's Scariest Chart."

"This chart shows something surprising…an enormous acceleration of borrowing starting in 2000, which didn’t let up until very recently. The solid line is the actual ratio, and the dotted line is where debt would have been if people had kept borrowing at roughly the same as in the 1990s. The difference between the two…roughly 25% of GDP in 2007…is the amount of extra debt.

So by this calculation, there is $3 trillion of extra debt that are weighing down households. That’s why the financial crisis has prove so hard to solve. The real scope of the problem is not subprime mortgages, but rather this $3 trillion extra debt."

Mortgages, home equity loans, credit card debt, student loans, payday loans, auto loans...Household debt is the problem here.

2 comments:

Sam said...

Couldn't you take this a step further and say that the real problem is educating those that acquire this debt on the importance of being content until you can buy with cash and working through school to not feed the Sallie Mae machine. I wonder if we weren't a microwave society how much lower that number would be.

BTW, I ran across your blog in searching.

Sam

debt advice said...

The problem with borrowing is that it is a vicious circle. You borrow, then you have less next month because you have the minimum payment to pay on that debt - so then you have to borrow a little more... It can never stay the same!