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you are here: > Self > 5.
Society and ME
| 5.29 |
General Social Trend #6:
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| The growth in personal, family and inherited debt | ||
| Debt has been a financial option for some countries and companies for decades. However, for consumers, access to debt financing was limited until the last thirty to forty years. Today, there are literally hundreds of different types of credit and loyalty cards and thousands of finance options for most consumers in developed nations. | ||
| The net result of this sea of debt finance has been to fuel an unprecedented period of consumer spending in nations such as Australia, the United States, UK and Europe. | ||
| US consumer debt has reached staggering levels after more than doubling over the past 10 years. According to the US Federal Reserve Board, consumer debt hit $1.98 trillion in October 2003, up from $1.5 trillion three years ago. This figure, representing credit card and car loan debt, but excluding mortgages, translates into approximately $18,700 per US household. | ||
| Outstanding consumer credit, including mortgage and other debt, reached $9.3 trillion in April 2003, representing an increase from $7 trillion in January 2000. The total credit card debt alone stands at $735 billion, with the household card debt of those who carry balances estimated to average $12,000. | ||
| According to CNNMoney, consumer spending accounts for some 70 percent of the US gross domestic product. “So the world economy is leveraged to the US consumer. And the US consumer is leveraged to the hilt,” states the web site. | ||
| Experts warn that the debt bubble potentially dwarfs the US stock market asset bubble that burst in 2000. Consumer credit and mortgage debt represent a higher percentage of disposable income than ever before. Household debt as a percentage of assets reached the historic high of 22.6 percent in the first quarter of 2003. The Federal Reserve revealed that personal savings dropped to a mere 2 percent of after-tax income in the first half of 2003. | ||
| 5.29.1 | Rising inflation, interest rates and the doomsday scenario | |
| If everything were to remain the same, especially low interest rates and stable costs, then the consumer debt bubble of the US and the world could probably continue along for a few more years. However, the doomsday scenario has already started in the United States, except for a brief blimp when the Bush Administration deliberately dumped millions of barrels of oil into the economy to keep fuel prices low. It is rising inflation fuelling rising interest rates and ultimately massive debt default levels. | ||
| The cost of energy has been pushing up prices across the world. Interest rates have already started to rise in most markets and just how dangerously geared households is reflected in consumer behaviour to small interest rate rises. If inflation continue to rise, then interest rates will also have to rise and millions of households around the world risk losing everything. | ||
| 5.29.2 | The biggest crash in history | |
| Unless tens of millions of Americans find a way of simultaneously reducing their debt burden, then when the crash occurs, the bankruptcy of American consumers will potentially be the largest financial disaster in human history- causing some of the world’s largest companies such as car manufacturers, airlines, massive retail stores to collapse. | ||
| This is not an unsubstantiated or arbitrary hope for such terrible outcomes, but the realization that the crash, caused by runaway debt fuelling consumer spending for over ten years was never sustainable and ultimately the world economy will have to pay the price. | ||
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