Posts Tagged ‘American debt’

In 15 years, most Americans became poorer

May 16, 2016


Americans are discontented because the majority of us are poorer than we were 15 years ago.

The exception consists of the 10 percent minority who had the most to begin with.

Your net worth is what you own minus what you owe, and Americans in all but the highest income brackets owe more than they did 15 years ago.

That’s especially true of a middle class person who has a home mortgage, is making car payments and is paying off a student loan.

Declining net worth means that a majority of Americans have less of a cushion if something drastic goes wrong in their lives—a layoff, a factory closing, a business downsizing.  It’s no wonder that voters turn to candidates who say they can do something about this.

Declining net worth means that sensible Americans are ceasing to go into debt to buy things they don’t really need.  This means trouble for a free market capitalist economy that depends on continual growth in consumer demand to fuel economic growth.  It’s no wonder that so many younger Americans are beginning to have doubts about whether capitalism works.


Americans Are Pissed—This Chart May Explain Why by Liz Weston for nerdwallet.  (Hat tip to Mike the Mad Biologist.)

The limits of an economy based on debt

March 9, 2015

credit-compensation3-15aSource: Charles Hugh Smith.

Since the 1970s, wages have failed to keep pace with productivity, and Americans have maintained their material standard of living by borrowing.   While this enabled Americans to buy good and services and keep the U.S. economy going, the ability to borrow has reached its limit.

This means a more frugal standard of living and slower economic growth.  And, as I see it, there is no much anybody can do about it.

The chart shows the ratio of the total amount of American debt—individual, business and government—and total wages and salaries of workers employed by private industry.  In 1960, total debt was a little over three times total wages and salaries; now debt is a little over nine times total wages and salaries.

What I think the chart shows is:

  • Healthy growth in wages and salaries in the 1960s, keeping pace with debt.
  • Stagnation in wages and salaries in the 1970s, without much growth in debt.
  • A bubble in the 1980s, with the economy fueled by increased borrowing.
  • Healthy growth in wages and salaries in the 1990s, keeping pace with debt.
  • Another bubble in the 2000s.
  • Maxxing out on debt in the 2010s.  Those who can try to pay down their debts; those who can’t go bankrupt.

The fact that Americans are paying down their debts and trying to save is a good thing, not a bad thing.  But it means that the federal government will be less able than in the past to stimulate the economy by stimulating spending and borrowing.

I think it would be a big mistake to try to start another debt bubble.  Instead we Americans need to think about building up the real economy, and putting people to work doing the many things that need to be done.


The One Chart You Need to Predict the Future by Charles Hugh Smith.

Secrets of the U.S. economy

July 25, 2011

Click to enlarge