BY RUSSELL TURNER
SIP BEFORE YOU GULP
All of us at one time or the other has got a hot drink such as coffee or hot chocolate and took a big gulp and got a nasty burn in our mouth. A few times getting our mouth burned will make us a little more cautious about what and how much of a substance that we put into our mouth, a logical person learns to take a tiny sip first to see if the drink is cool enough to drink. It is strange that we humans will learn our lesson about drinking something too hot, but in the financial sector we tend to have very short memories.
I recently read some statics about the debt and spending habits that we Americans are currently engaged in. It was less than ten years ago in 2008 that our whole economy was teetering on collapse due to a huge bubble in the housing market. I can remember those days vividly, a large portion of Americans were paying inflated prices for houses with the belief that the prices would never come down and they would continue to grow indefinitely. People were getting into debt and were able to borrow money on houses without any collateral. Reckless spending and massive debt almost collapsed our economy; because of massive bailouts from our government things on the surface seem better, but too many Americans have forgotten about the sipping analogy.
Federal Reserve data shows U.S. credit card debt topped $1.0 trillion in February, marking the highest level since January 2009. And that’s not all: U.S. consumers have also amassed $1.4 trillion in student loan debt and $1.1 trillion in car loans. Between credit cards, student loans, and car loans, U.S. consumers are saddled with a staggering $3.5 trillion in debt. After years of absurdly low interest rates set by the Fed, which was supposed to encourage consumers to borrow, they were hoping for a roaring economy to repay those debts. Americans have experienced lackluster wage growth and soaring healthcare costs which have pounded away at our pocket books. The anticipated economic growth has been slow to materialize. Some hard facts need to be looked at. U.S. student loan debt jumped more than 170 percent over the last decade. March U.S. commercial bankruptcy filings jumped 28% on the month, while personal bankruptcies soared 40%. Fourth-quarter U.S. auto loan delinquencies reached their highest level since late-2008 at $23.27 billion.
For years I and other conservatives have been warning about the increasing national debt and unfunded pension funds; those debts, coupled with all of the personal debt, are a virtual ticking time bomb. I find it disturbing that many Americans don’t seem the least bit concerned about the dilemma our country is facing. In 2008 we as a society took a big gulp of irresponsible spending and debt; it seems like the lesson didn’t stick. One thing that we must be aware of is that more pressure will be on the government to get cash in just about any way they can: More taxes … more fees … more intrusions … and, sure, outright confiscations. When it comes to debt, until we Americans start to act like responsible adults and sip before we gulp, we are in trouble.
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