11/4/2007 10:24:24 PM

jebus.....
does that exclude housing debt (mortgage)?

11/4/2007 10:25:54 PM

Basically, the American people are spending the economy into disrepair.

11/4/2007 10:26:21 PM

keep borrowing everybody. If we get it over 100 it resets!

11/4/2007 10:26:45 PM

basic micro economics should be manditory in high school

11/4/2007 10:27:49 PM

increased personal debt is strongly linked to increased carbondioxide

11/4/2007 10:33:01 PM

^^^lol. according to the graph, it's true.

^^I thought it was... Civics/Economics?

11/4/2007 10:34:44 PM

i never took an economics class in high school. My civics class was 100% about how the fed gov works.

I probably wasted 3 semesters on required "health" classes though.

[Edited on November 4, 2007 at 10:45 PM. Reason : d]

11/4/2007 10:39:18 PM

It started to level off under Clinton, and has accelerated under Bush.

11/4/2007 10:42:00 PM

btw I found this here

http://www.time-blog.com/curious_capitalist/

11/4/2007 10:56:26 PM

so, my father-in-law insists that the economic boom of the mid-late 90s was a case of Clinton being in the right place at the right time. i.e. it would have happened no matter who was in office and what his economic policy was.

but he insists that the boom of the past 5 years has been due to the brilliant economic policy of the Bush Administration.

given information like this graph and the collapsing housing market, wouldn't it be fair to say that Bush is in the right place at the right time too, except that instead of the economy being propped up by an exploding technology sector, much of which has continued to thrive and create thousands of jobs and tons of money, it's being propped up by credit card debt and unsustainable housing prices?

11/4/2007 11:13:44 PM

^I tend to think that the economy as a whole doesn't really give a shit who is president. Things are going to happen just about the same no matter who is in office.

11/4/2007 11:15:11 PM

^ For the most part, yes. But presidents like to take credit for good economic times. If that's the case, then they need to be held responsible for when the economy isn't doing well too.

11/4/2007 11:21:45 PM

Quote :

"the boom of the past 5 years has been due to the brilliant economic policy of the Bush Administration"

your father-in-law and my dad must hang out.

:

11/4/2007 11:48:58 PM

The graph is very strongly correlated with Bush's presidency, but weakly correlated with other presidencies. I don't know if that's meaningful.

A Fox News-y spin might be that under Bush Americans have been taking out loans at higher rates to start businesses and it's too early to say what the results are.

11/4/2007 11:55:07 PM

^ Preliminary reports indicate we're fucked.

11/5/2007 12:11:54 AM

so it seems like either we are about to plateau off or we are gonna keep going up at a good clip

first i'd want to know what happened to cause the rising action, then i'd want to know the consequences of it keeping on rising and then the consequences of a plateau etc

11/5/2007 12:42:18 AM

is it about time to move to china?

11/5/2007 12:43:43 AM

Quote :

"Basically, the American people are spending the economy into disrepair."

amen...i say this to myself at least 15 times a week it seems like

people always gotta buy stupid shit...why cant we just buy what we really need and save the rest...i mean damn...

11/5/2007 12:46:58 AM

^^^ Aren't you a business major? Shouldn't you be telling US those things?

[Edited on November 5, 2007 at 12:53 AM. Reason : ]

11/5/2007 12:52:53 AM

they didnt talk about debt as a percentage of personal income graphs in ec 202 or 205...

11/5/2007 12:55:32 AM

Quote :

"The graph is very strongly correlated with Bush's presidency, but weakly correlated with other presidencies. I don't know if that's meaningful. A Fox News-y spin might be that under Bush Americans have been taking out loans at higher rates to start businesses and it's too early to say what the results are."

moron

I hold a BSBA, and I can tell you that your ignorance is stunning. Households operate at the microeconomic level, which President Bush doesn't control. He doesn't even control the economy at the macroeconomic level, but he can have some effect here and there on it.

I mean, are you saying that Bush controls the minds of the people living in these households? Have they somehow lost the ability to make financial decisions and otherwise for themselves?

And what is this correlation that you are metaphorically yammering about? Are you going to come back with an "OMFG! Evil Bush asked people to spend!!!1" If so, so what? Asking people to spend to help the economy through troubled times such as 9-11 is not the same as telling those people to go into debt--especially more debt than they can handle.

For the record, I would like to know what percentage of the percentage in question can be attributed to home loans. I think most reasonable people would consider a house to be "good" debt, the recent concerns in the lending market notwithstanding.

11/5/2007 4:33:01 AM

Interpret this graph...
Ok, it is a graph tracking the economic optimism of the American People. As during most of the 20th century recessions were frequent and threw a large percentage of Americans out of work it was a virtue to minimize household debt. Similarly, high interest rates equally rewarded debt adverse individuals.

However, today, recessions are rare (every decade or so) and very shallow, throwing maybe 4% of households into involuntary unemployment. Equally, debt has become so easy to acquire, even when unemployed, that households no longer need to fear debt payments even if they do become unemployed.

As such, households are taking advantage of a tendency for individuals to earn ever more money the older they get. As such, they are using debt to better balance income out over their lifetimes, which means building up debt while young and paying it off in middle-age, a long-time wish that in earlier eras proved prohibitive.

As such, this graph is a good sign that things have gotten better and people know it.

The sub-prime mortgage market is a small hiccup which will probably not even be remarked upon by future generations.

[Edited on November 5, 2007 at 7:15 AM. Reason : .,.]

11/5/2007 7:13:07 AM

so, you really think that all these people have a plan to pay off their enormous debt later in life? You honestly believe that when people decide to put a gigantic purchase on credit, their line of reasoning is: "hmm..... well even if there is a recession, hopefully i'll not be one of the 4% of people that lose their job. plus, since I flip burgers at McDonald's for $7/hour, the people who do get laid off will probably start eating more McDonald's, so i'm pretty safe. I'll just buy this plasma TV and let it accrue 29% interest per year while I struggle to make the minimum payment, then in 15 years when I'm Assistant Manager I'll pay it back off!"

11/5/2007 8:59:54 AM

http://video.google.com/videoplay?docid=-9050474362583451279

11/5/2007 10:08:12 AM

Quote :

"I hold a BSBA, and I can tell you that your ignorance is stunning... "

Anyone who is not an idiot can tell I was being facetious in my post. Even a guy who's name is "ImStoned420" picked it up. You lose, once again.

11/5/2007 11:00:30 AM

Quote :

"so, you really think that all these people have a plan to pay off their enormous debt later in life? You honestly believe that when people decide to put a gigantic purchase on credit, their line of reasoning is: "hmm..... well even if there is a recession, hopefully i'll not be one of the 4% of people that lose their job. plus, since I flip burgers at McDonald's for $7/hour, the people who do get laid off will probably start eating more McDonald's, so i'm pretty safe. I'll just buy this plasma TV and let it accrue 29% interest per year while I struggle to make the minimum payment, then in 15 years when I'm Assistant Manager I'll pay it back off!""

One of the main sources of indebtedness in this country (and also #1 cause of bankruptcy) is health care costs, not irresponsible elective spending.

[Edited on November 5, 2007 at 11:11 AM. Reason : .]

11/5/2007 11:10:29 AM

I think its sad, but just another step further of no self responsibility. People clearly want a lifestyle they cant afford. THen bitch that they cant afford things like healthcare. Well I imagine you could afford it if you didnt keep a car payment, or CC debt. Being in debt has become normal and it is sad.

However, if the cost of housing is factored into the graph, then things probably arent as bad as the graph would make out.

11/5/2007 11:11:14 AM

^^ ok, so how does that affect LoneShark's argument? He seems to be implying that people are willingly going further into debt because they believe that the US Economy has reached such a strong level that they will be able to pay it off in the future. People willingly going into debt would imply discretionary spending, not necessary spending like healthcare.

Quote :

"However, if the cost of housing is factored into the graph, then things probably arent as bad as the graph would make out."

i can't imagine that it does include housing costs. That would imply that even in 2007, the average housing debt is less than household income. This is clearly not possible, as the median house price in the US is something like $220k, and the median personal income is still around $40k. (The graph says "household debt" vs. "personal income", so it's unclear to me if "personal income" is per person, or per house - either way, the general point stands)

11/5/2007 11:22:42 AM

^you are correct, however that is an average. And there are alot of people who have thier houses paid off or pay cash. I can see your point though, it does seem unlikely.

11/5/2007 11:36:24 AM

More households have both parents bringing in income? Household debt would imply all the debt carried by all members of the household, while personal income would seem to imply being based on the individual. If during the times when it was common for only one parent to work , debt was ~40% of a single person's income, wouldn't it make sense that when both parents are working debt would be ~80% of a single person's income?

11/5/2007 11:45:05 AM

i'm not sure..... the graph needs to be explained better. but overall, i think it would make sense that if 2 people are working in a household instead of one, overall debt should go down......

11/5/2007 11:59:11 AM

Quote :

"I hold a BSBA, and I can tell you that _____ "

omg.

that has to be thee BEST argument from authority i've EVER seen!

and on a discussion board full of college alumni and grad students, no less.

woot WOOT

:spin;

11/5/2007 1:30:07 PM

Didn't Bush brag about home ownership being at an all-time high a couple of years ago?

11/5/2007 2:15:27 PM

here's a speech from 2002 where he set out goals of home ownership (uhhh..... and some other stuff too)

Quote :

"Let me first talk about how to make sure America is secure from a group of killers, people who hate -- you know what they hate? They hate the idea that somebody can go buy a home. They hate freedom; that's what they hate. They hate the fact that we worship freely. They don't like the thought of Christian, Jew and Muslim living side by side in peace. They don't like that at all. And therefore, they -- since they resent our freedoms, they feel like they should take out their resentment by destroying innocent lives. And this country will do everything we can possibly do to protect America. ...... But I believe owning something is a part of the American Dream, as well. I believe when somebody owns their own home, they're realizing the American Dream. They can say it's my home, it's nobody else's home. (Applause.) And we saw that yesterday in Atlanta, when we went to the new homes of the new homeowners. And I saw with pride firsthand, the man say, welcome to my home. He didn't say, welcome to government's home; he didn't say, welcome to my neighbor's home; he said, welcome to my home. I own the home, and you're welcome to come in the home, and I appreciate it. ...... We are here in Washington, D.C. to address problems. So I've set this goal for the country. We want 5.5 million more homeowners by 2010 -- million more minority homeowners by 2010. (Applause.) Five-and-a-half million families by 2010 will own a home. That is our goal. It is a realistic goal. But it's going to mean we're going to have to work hard to achieve the goal, all of us. And by all of us, I mean not only the federal government, but the private sector, as well. And so I want to, one, encourage you to do everything you can to work in a realistic, smart way to get this done. I repeat, we're here for a reason. And part of the reason is to make this dream extend everywhere. I'm going to do my part by setting the goal, by reminding people of the goal, by heralding the goal, and by calling people into action, both the federal level, state level, local level, and in the private sector. (Applause.) And so what are the barriers that we can deal with here in Washington? Well, probably the single barrier to first-time homeownership is high down payments. People take a look at the down payment, they say that's too high, I'm not buying. They may have the desire to buy, but they don't have the wherewithal to handle the down payment. We can deal with that. And so I've asked Congress to fully fund an American Dream down payment fund which will help a low-income family to qualify to buy, to buy. (Applause.) "

http://www.hud.gov/news/speeches/presremarks.cfm

11/5/2007 2:25:25 PM

haha, its almost comical what people will blame on govt.

The solution is simple. You dont allow the govt to bail out people's bad decisions. However, if you did that, you would eliminate the democratic party. Just messin around.

11/5/2007 3:45:10 PM

^ The Republicans too nowadays.

A somewhat humorous view:

Quote :

"The U.S. economy, for all its worldly sophistication, is driven by mall shoppers and late-night Amazon addicts—70 percent of the gross domestic product is accounted for by consumer spending, which is buttressed by debt. According to the Federal Reserve, total U.S. household debt was, as of August, $2.5 trillion—a 24 percent increase in the past five years. Total credit-card debt, including gas cards and the like, was $915 billion. The willingness of consumers to keep spending and piling on debt in the midst of a slowing real-estate market is hailed on Wall Street as an act of patriotism, which Schiff considers perverse. Imagine, he suggests, that you ran into a good friend and asked him how he was doing. His reply: “I took out a third mortgage, maxed out my credit cards, and emptied out my kids’ college savings account so I could buy a bigger TV and a new car, and we’re going to Greece on vacation over the holidays. Things are great!” Schiff lets the idea sink in and then finishes the thought: “And we’re celebrating the fact that we’re doing this as a nation?” "

http://nymag.com/guides/money/2007/39952/

[Edited on November 5, 2007 at 3:47 PM. Reason : /]

11/5/2007 3:45:18 PM

^sadly, you are right about the repubs these days. Hopefully whatever got into GW isnt contagious.

11/5/2007 3:49:21 PM

Quote :

"drunknloaded: first i'd want to know what happened to cause the rising action"

0% effective interest rates for years following 9/11, coupled with technological advancement and economies of scale making it profitable enough for the sub-prime lending sector to take shape.

Quote :

"drunknloaded: then i'd want to know the consequences of it keeping on rising and then the consequences of a plateau etc"

Nothing. And... nothing.

Expectations -- or, more accurately, expectations that actually influence behavior -- are what matter here. This thread is essentially equivalent to people who say America is going bankrupt because of the national debt without ever accounting for the reality there's never been a net decrease in the national debt over any 10-, 20-, 30-, 40-, etc-year timeframe since the early 1910s, while at the same time standards of living have increased several times over... 

11/5/2007 3:53:28 PM

^ I hope there would be something more substantial to your belief that this has no effects, because the reasoning "because there was never a problem before, there never will be a problem" doesn't really make a lot of sense.

11/5/2007 3:57:25 PM

^
well the reasoning is ultimately economic -- people are making a voluntary choice that is improving their standard of living, and they have the ability to do so as a direct result of the increased flexibility and responsiveness of the marketplace.

It's a microeconomic application of the same national debt problem, there's a certain equilibrium range of debt-service payments that's going to exist in any given household. The interest rate climate and availability of capital have allowed them to obtain previously out-of-reach goods (like a home) while remaining at that range.

For people who go over, they're going to go bankrupt and if there are enough of them there will be brief economic fallout and life will move on, as other companies, consumers and individuals in the marketplace pick up the remains. For everyone else, they've bettered themselves immediately with no negative consequences. 

11/5/2007 4:02:36 PM

^ There will be a number of people that will go bankrupt just cause of overextension. Those people will then not be able to buy as much as they were beforehand. So that would affect the national economy as a whole cause as was pointed out, 70% of our national economy is consumption. So if not only people that go bankrupt, but others that just feel like their credit is getting tighter spend less, you can see how this could cause a problem.

Quote :

"For everyone else, they've bettered themselves immediately with no negative consequences. "

Yes. I saw the housing bubble two years ago when I started looking for a house, decided to just build up money for a down payment and stay renting, and I've been waiting knowing that housing prices would eventually fall dramatically and I could get a place at a steep discount.

Long-term, the American tradition of buying stuff on a credit card is going to be significantly curtailed, as financial companies will be less willing to give out credit if they're not assured of getting paid back, or at the very least there will be an increased risk premium.

[Edited on November 5, 2007 at 4:11 PM. Reason : .]

11/5/2007 4:08:39 PM

^^ You're neglecting the correlation between debt, interest rates, and inflation, and how this relates to the fact that 70% of the economy is consumer spending.

11/5/2007 4:10:42 PM

^ & ^^
The fact 70%+ of the economy is consumer spending makes this *less* of a problem, not more -- consumers are the more flexible party relative to the government. That's why our national debt has climbed while our standard of living has climbed even faster, compared to other national economies that have stagnated.

I mean, Japan's savings rate is huge...

---

Quote :

"Flyin Ryan: There will be a number of people that will go bankrupt just cause of overextension. Those people will then not be able to buy as much as they were beforehand."

Yes, while the remainder will be able to buy more as a result of these folks' overextension b/c they're going to be the ones picking up the pieces. Like you and your wait for prices to drop, instead of Jim buying a house and having only $20K left he can go by Bankrupt Bob's house and have $50K left.

---

Quote :

"Flyin Ryan: So if not only people that go bankrupt, but others that just feel like their credit is getting tighter spend less, you can see how this could cause a problem."

This is perfectly true, but something would have to happen wide enough for it to make a tangible impact. With 70% of the economy being rooted in personal consumption, the odds of a sufficiently wide financial pandemic to make that kind of impact are slim simply because of the sheer number of actors in the marketplace.

[Edited on November 5, 2007 at 4:17 PM. Reason : ack, "consumption" not "inflation" ]

11/5/2007 4:16:31 PM

Quote :

"so, you really think that all these people have a plan to pay off their enormous debt later in life?"

Surely not all of them. But the statistics on this issue is very clear. The vast majority of people pay their loans on time.

11/5/2007 4:45:08 PM

define "on time" for someone attempting to pay off $25k of credit card debt at 25% interest by making the minimum monthly payment.

11/5/2007 4:48:25 PM

on-time would be in agreement with the contract they agreed to abide by. What is your point?

BTW: rainman's video is hilarious. My favorite quote is: "Why do governments choose to borrow money from private banks at interest when gov't could create all the interest-free money it needs, itself?"

Friggin hilarious.

11/5/2007 4:52:45 PM

i guess our points are exactly the same.

Yes, it is true that most people have no problems making their contractually agreed payment "on time". In the case of credit cards, that means they can continue to make the minimum payment indefinitely, while never actually decreasing the principle. It seems to me, though, that the actual point is to pay the debt off in full at some point, which many of these people will never actually be able to fully do so.

11/5/2007 5:02:23 PM

Quote :

"This is perfectly true, but something would have to happen wide enough for it to make a tangible impact. With 70% of the economy being rooted in personal consumption, the odds of a sufficiently wide financial pandemic to make that kind of impact are slim simply because of the sheer number of actors in the marketplace. "

Sufficiently wide financial pandemic = the housing bubble

If the worth of houses goes down, then people cannot take out home equity loans, which is where a lot of the money for consumption has been coming from in the past couple years. This HELOC culture for buying wants was actively encouraged by the former head of the National Association of Realtors David Lareah, who said if your house was paid off, "you were losing money".

11/5/2007 5:20:31 PM

agentlion, such is their decision. What you need to recognize is that "the point" is dictated by the micro-economic individuals in question. If they arrange their circumstances such that a large percentage of their annual income goes to debt payments then that is their business.

There is no "right" level of debt. If you know some individual that is struggling or otherwise living unsustainably then find them help. But don't look at national statistics and try to generalize everyone. Americans have had ready access to debt for over a generation with no discernable long term trends for bankruptcy or delinquincy. As such, since Americans have not demonstrably become less capable of managing their debt we must conclude that Americans are capable of managing the current much higher debt levels. And as I explained, there are plenty of reasons to believe debt has become far more manageable today.

Also, as the graph shows, Americans are capable of reducing their debt levels if the risks associated with debt grow. Specifically, if world war breaks out or the belief in economic stability suffers. People will re-locate to smaller houses, get their cars to drive longer, and stop taking trips to Europe.

Quote :

"If the worth of houses goes down, then people cannot take out home equity loans, which is where a lot of the money for consumption has been coming from in the past couple years."

The Federal Reserve has the ability to regulate interest rates, increasing the rate of money creation sufficient to offset most disruptions to consumer confidence.

[Edited on November 5, 2007 at 5:27 PM. Reason : .,.]

11/5/2007 5:24:39 PM