AC Flyer,
Debt is mankind's second greatest invention, after fiat money, which is the first.
I would modify your somewhat bold statement slightly. All things in moderation. The privilege of debt, when properly and responsibly used, is a wonderful thing. The privilege of debt, when abused, is a terrible and destructive thing. It matters little whether the debt abuser is the lend-ee or the lend-or. Abuse of debt can and does occur on both sides of the agreement.
The real argument regarding USA consumer debt (and corporate debt for that matter), is not whether or not debt helps or hinders the economy. The real argument is whether or not the privilege of debt has been abused, and is excessive. There can be no counter response to the fact that current debt, both public and private, stands at all time record highs. Is this good or bad? Is it an abuse of debt? The bulls say no, and the bears say yeah!!!
Ultimately, as a nation, we will find out for sure pretty soon, one way or the other... My own guess is that debt in the public sector is dangerously close to exceeding levels long thought to be the outside safe limit for government debt. What happens when we exceed these limits remains to be seen. I suspect the outcome will not be good by anyone's definition of the word "good".
We have more than ample evidence that debt has been abused repeatedly in the corporate sector all throughout the 1990s. The chickens are coming home to roost now, as many companies cannot generate sufficient revenues and cash flows to honor their obligations. Assets are sold at fire sale prices just to reduce debt, or in some instances, meet the next interest payment. Numerous bankruptcies loom large, especially in the telecom industry.
And lastly, consumer debt stands at an all time high. This debt may not be such a bad thing if the vast majority of it could be attributed to mortgage debt, or otherwise secured debt. Unfortunately, much of it is revolving credit debt, such as credit cards or personal loans. To add insult to injury, the safety net of home equity has already been tapped throughout the 1990s, so the safety net is gone and the mortgage debt is increased. Personal savings rates hover below 2%, so there's no protection or margin for error there either. What do people do when they run out of credit, when they can no longer charge this month's living expenses to next month's paycheck?
My best guess is that debt is going to become a major problem for some people (not all people)... People with sudden and costly illnesses, people with bad credit histories, people who own the wrong corporate bonds (as opposed to a diversified bond fund), people who without warning find themselves unemployed, people who spend irresponsibly and in excess of their abilities to pay, and on and on and on ad infinitum...
But what do I know?
KJC |
