Bankruptcy

Mad About Debt

By Alan White

Exit polls tell us that the economy was forefront in the minds of yesterday's voters, but also that the national debt was high on the list of concerns.  The deep personal anxiety about the national debt surely is not just civic worry about Uncle Sam's credit rating.  Americans are in some measure projecting their own debt anxieties onto the government.  While one in three voter's family has experienced a job loss, household debt is affecting nearly everyone.

Nearly four years into the crisis (formerly called the subprime mortgage crisis) we are still suffering a massive hangover from the debt binge of the last decade.  In ten years household debt exploded from five and a half trillion to nearly fourteen trillion dollars.  From the onset of the crisis in 2007 through June 2010 mortgage debt and all the rest (credit cards, student loans) has inched down painfully slowly.  It would take thirty years at the present rate to bring household debt back to something like its 2000 levels.  Folks seeking mortgage workouts, over a million of them, are paying an average of 80% of gross income for debt service.  Students are graduating college with six-figure debt.

If debt worries were really just about government borrowing, the voters' simultaneous obsession with tax reduction could seem deliberately obtuse.  Candidates of all parties clamored to outdo each other's promises of tax reduction.  My own state of Indiana passed a constitutional amendment capping property taxes, heedless of the California experience with Proposition 13.  Tax reduction is not particularly helpful in reducing government debt, but taxes do represent spending for debt-burdened households. 

Any politician hoping to avoid the ballot box punishment just inflicted on Democrats would do well to consider not only how to address the government deficit, but also how to relieve Americans of their debt overhang.

Full post as published by Credit Slips on November 03, 2010 (boomark / email).