Americans are in more trouble with debt now than ever before. Millions of homeowners who bought into the housing bubble with zero-down and adjustable-rate mortgages are beginning to feel a nasty sting as their mortgages get adjusted upwards. A total of $425 billion in adjustable-rate mortgages and $600 billion in home equity lines of credit are being adjusted upwards this year. The problem will only get worse as time goes on.
This reflects a greater problem, which is that Americans are generally borrowing more than they earn and are borrowing more than ever before. Their problems do not result from buying luxuries they cannot afford, but because they are being afflicted with a quadruple whammy of soaring costs in housing, healthcare, education and energy while incomes continue to stagnate year after year. Sooner or later the piper will have to be paid either through increasing incomes or through bankruptcies.
As the economy continues to whisper intimations of recession, the possibility that this spiraling debt could become a crisis is a real one indeed. Inflation continues to flow through the economy despite the Fed’s repeatedly raising interest rates for over two years, yet the Fed fears raising rates further for fear of accelerating the slowdown already being seen in the numbers.
Sounds like some hard times are ahead.
No related posts.
{ 1 comment }
I’m not sure I agree with the premise of “Their problems do not result from buying luxuries they cannot afford”. Maybe that’s true for a very small percentage of people, but most people, I think, are over their heads in debt because they *did* want things they couldn’t afford. They wanted that bigger house. They wanted the SUV with lousy gas mileage instead of the smaller car with little acceleration but good MPG. Heck, they think that they can’t live without cable-TV, and are paying for premium channels because they *have* to have that stuff. Drop cable-TV and switch to a pre-pay cell phone plan and only use the cell phone for emergencies. When I was growing up, my 5 siblings and I shared 3 bedrooms. These days, each kid *expects* their own bedroom, and wants the latest Playstation/X-Box.
Yes, the truly poor are being squeezed, through little fault of their own. But I think a much larger percentage of people haven’t thought at all about sacraficing, and just thought about getting things now.
Comments on this entry are closed.