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Wednesday, June 18, 2014

Post #1,501: Total US Debtload

Its Wednesday and we're back..

A&G was founded on Sept 6, 2010 and today we celebrate posting #1,501 so we better make sure its something special and not just the same ol' same ol'..

Of course when you're dealing with a most dry, tedious, monotonous topic like finance and economics intentionally meant to confuse and appear over-complicated to the masses, we usually have our work cut out for us..

Well.. here's a simple number to start with

$59.4 Trillion which is $59,400,000,000,000
This is the Total Debt of All US citizens adding in government debt, business debt, mortgage debt and consumer debt.

Remember, what the government borrows and owes, the people re-pay via higher taxes and/or less social services..

That's you and we and our mamas and papas and maw-maws and paw-paws and everyone else outside of our children and pet puppies and kitties..

Don't worry.. the System will get to them too and destroy them..

Your children we mean.. Not your pets.. Wheww, I know, right?

Its one of the imaginary Amendments to the Constitution.. #69 we think..
~ "Thanks Dad for paying for my tuition.. oh, this is Billy.. we're in love.."

It says that every young adult who turns 18 MUST go to college because it is their God-Given right to attend a University and non-dischargeable student loans are to be as plentiful to those with Zero credit history as blades of grass on a hill..

So next question..  40 years ago (1974), what was the total debt load?

We'll let you guess...

A)  $1.2 Trillion
B)  $2.2 Trillion
C)  $5.5 Trillion
D)  $6.6 Trillion

Answer following pictures of cats eating cake...

Answer:  B   $2.2 Trillion

So in 40 years, our collective personal debt has expanded by 2,700%

The population then was just under 214 million which means in a mere 40 years, we've added another 100 million consumers whether from birth or immigration (legal and illegal)
~ Free of debt.. woo-hoo!

Let's see when things got crazy (Stats provided by St.Louis Fed)

1974 personal debt was at $2.2 Trillion and by 1984, it was $6.64 Trillion so that's a rise of $4.44 Trillion in 10 years..

OK, that's not terrible by any stretch..

Remember the US government under Reagan didn't reach its first Trillion in debt until about this cutoff point..
~ singing:  God.. Bless..   America...

1984 personal debt was at $6.64 Trillion and by 1994, it was $16.58 Trillion so that's a rise of nearly $10 Trillion in 10 years..

What happened here in this period?

This is when Wall Street began its long, insidious wolf-howl..

Also dramatic decline in interest rates thanks to the despicable Fed Chairman at the time, Alan Greenspan which in plain truth, is merely the 'candy' the economic devil entices people with to ultimately sell their financial souls
~ If I have to be here for so long, all I am asking is why couldn't there have been some lox and cream cheese provided?

This period was also the beginning of the personal credit card boom

Prior to the early 1980s, only a select few held credit cards, the most popular being American Express or Diners' Cards.   In the case of AMEX you had to show you earned enough, get accepted and pay their yearly membership which was $55 to $75, the equivalent of double today..

And oh yes.. AMEX carried zero balance..  You got the bill and you paid 100% of it off..  No exceptions.. No excuses..

Then laws were passed which unified the interest rate that banks could charge and the terms of debt collection so all states had to recognize the banking laws of the state which the bank resided..
So cards could become more plentiful and ultimately by the early 1990s the new enticement to get people to spend was 'No annual fee' cards..

Let's continue tracking this debt explosion..

1994 personal debt was at $16.58 Trillion and by 2004, it was $37.64 Trillion so that's a rise of nearly over $20 Trillion in that 10 year span!

So what happened?

A Dot.com crash followed by recession followed by a second one post 9/11, and a speculative housing boom and well, just the natural mathematical progression of increased debt paid at bare minimum payments.

Also remember our debt kept growing when Clinton was in office.  He was able to successfully pay down the deficit which is more than our last two Presidents, but debt and deficit are different things..

Ex:  You have a credit card that you owe $2k on and you are making your minimum payments of $125..   The $2k is your Debt.. the $125 is your Deficit..  And when you start making payments of say $145 monthly, your deficit will ultimately lower

Normally your debt should be lowering too but since more purchases are made on the card, the debt never goes down... you just are controlling the minimum payment shock..

This was also the beginnings of the first speculative housing boon and what people tend to forget about mortgages is you do not own the house..  All you own is the legal right to reside in it and ultimately put it up for sale..
~ For a couple of our neighbors, we can only Wish!

The bank Owns that house and that mortgage is personal debt..  That's why you are forced to have home insurance when you pay mortgage..  This guarantees the bank recoups value if destroyed.  Once you hold title, you can do what you wish..

And remember a $200k mortgage at 4% for 30 years means you're paying 1.7x more for the home by your 360th and final payment vs having the cash to buy the house outright at time of purchase (A $800k home would cost about 2.4x the original home price)

So this is all mortgage and personal debt..

So lastly, in 2004 personal debt was at $37.64 Trillion and by today its at $59.4 Trillion which is a rise of another $22 Trillion in 10 years..
Now what's interesting according to the stats the St Louis Fed provides, is prior to the 2008 market crash, personal debt was rising by over $2 trillion annually

Then it reversed..

In the beginning of 2008, the debt was at $53 Trillion and went up a bit to $53.8, but then ultimately went down so by the middle of 2010, the debt total was back to that figure

Then the government and the Fed spent like wild beasts to create an artificial environment of normalcy to encourage you and yours to spend like wild beasts and a mere 4 years later, an additional $6.4 trillion has been spent..

And we all we can never repay it all..  Not even get control of things..
The goal is just to play for time..

Keep printing money and manipulate currency values and all the little tricks and schemes behind the scenes to make it appear all is well so you and we don't panic and try to literally overthrow those in charge and put their heads on pikes like the merry days of yore

This nation.. This world can not survive without debt..

And that is why no one is ever told or taught to save..  to prepare for the future..  a mere rainy day..

And no one is ever taught or told anymore that cash is better than credit; that paying in full is better than paying with interest or layaway plans...
If people were working hard, saving their money, content where they are and pretty much purchased things for need rather than for show or for therapy..

Everything would go 'Poof!'

And for those who may live abroad while reading this and think this is America's problem, do you know what the Total debt load is around the world at this moment..

$223.3 Trillion i.e  $223,300,000,000,000 which is 313% of global GDP

So we may hold 26.6% of the total global debt load but everyone else is holding onto that 73.4%

And the global banks are very happy..