The Real Source of Financial Instability: Consumer Debt

While the media gives it's due airtime to the feigned moral outrage of the Republican Party regarding the Federal Government's Debt obligations and continued deficit spending, the media has completely failed American citizens in addressing the true core issue of our economic imbalance: consumer spending and household debt.

  American's are justifiably uneasy about an accumulated Federal Debt total that exceeds 70% of annual GDP, but say nothing about the boat anchor around the neck of society which is consumer debt. Currently, reporting indicates that Household Debt per person for fiscal year 2007, was $46,115 or 123% of GDP. Compare that to the Per Capita earnings (in 2005 International Dollars) for America at $41,557. This in and of itself, demonstrates the escalation in debt spending to GDP, and the recent recessionary fall in GDP/economic contraction. This has made our problem far worse than most people realize.

Add to this the further contraction of tax revenues from spiraling unemployment, and the Federal debt figures, as they relate to our economy generally look to worsen considerably. And even though this is troubling, the underlying issue remains the unpaid debt obligations on the consumer side, specifically mortgages and credit cards. With unemployment helping to drive consumer debt rates higher in relation to GDP, we are in a situation not seen since the depression: Consumer debt to GDP exceeding 100%, and not forecasted to return below that level any time soon.

This situation was created by the great trap of economic restructuring and performance as America's response and contribution to globalization. We have relied on consumer spending, on a substantial amount of goods which are manufactured elsewhere, as the engine of our growth. Perpetuating that spending level became the focus of financial institutions, who created financial products and soft lending procedures that allowed people to continue to spend above their means, and over leverage themselves, all in the name of growth.

This has proven an enormous bubble produced by such a poor set of decisions, conducted by virtually every segment of society, whose outcome will be proved to be so severe, as to provide a significant repudiation of many of the economic principals of the last 20 years. And that's true for the theories of the GOP and Dems alike, both of which have proven insufficient to the tasks of understanding the effects of globalization, the emergence of the information age, and demonstrating the leadership to help steer our country into a place of lasting, sustainable dominance in both.

Just remember, a society of 303 million people, has just over 450 million Visa cards. That's not credit cards, that's VIsa cards. And we wonder....