An article currently headlining UNZ entitled
Donald Trump and the Next Crash has an interesting paragraph:
At a time when inequality, economic hardship, and household and personal debt levels are escalating and wages are not, why should any of this matter to the rest of us? The answer is simple enough: because the Fed sets the level of interest rates and so the cost of money. This, in turn, indirectly impacts the value of the dollar, which means everything you buy.
I'm going to guess that this writer is one of the left leaning of the writers found on the site due to the "inequality" commentary but what I really have issues with is "personal debt levels are escalating and wages are not" part. To be clear, I completely agree with the issue of wage stagnation. Real wages have basically stalled at 1990s levels or thereabouts. It's not all the Fed's fault either. Automation has done a lot to reshape the labour market, particularly in manufacturing. AI threatens to demolish other jobs, particularly those in the middle income areas. For example those self-checkout lines in supermarkets. The use of "scan-it" items in conjunction with self-checkout lines which, for those unfamiliar, allows the customer to scan their items as they shop and then just pay without going through the "scan each item at the register and then bag it" thing.
In the banking industry, tellers are replaced by ATMs and the increasing use of debit card transactions such that there is little reason for a customer to enter a bank, much less talk to anyone in one. AI's will be doing the loan thing in the near future, so the loan officer's job is about done.
I could go on about this topic but that's not the focus here. The focus here is on the idea that personal debt by Americans is some unavoidable phenomenon. As David Ramsey has shown, Americans are volunteering to be in debt by dint of their behavior. With the exception of medical emergencies and involuntary unemployment, debt is avoidable. When debt is taken on, it should be with a clear
income producingend.
One of the biggest debts Americans have outside of their mortgages, is auto debt. It is so bad that the industry is gearing up for
84 month car notes.
In the third quarter of 2015, the average monthly car payment surged to $482, up $12 per month from the year before. But, brace yourself, it gets worse. The average term of a new car loan is now 67 months – or five-and-a-half years.
hen there’s the 84-month car loan. Consumer Affairs wrote about this awful idea last year, noting the many reasons why a seven-year car loan is the worst of all worlds. Only a few lenders have rolled out this product, the piece notes, but not because they’re worried about consumers getting in over their heads; it’s mostly because car companies want you to buy a new car more often than every seven years.
I won't sign for a 5 year note, I know for damn sure I'm not paying for a car for 7 years. Why would anyone pay for a car for 7 years? Why would you allow a company to put their hands into your bank account and take nearly $500 for 7 years? That's $42,000. On a car that averages $28,000? Really?
Why would anyone do that when they can get a used car for far less? The fact is that Americans have been volunteering to be in debt. They take out home equity loans. They run up credit card debt that they cannot pay off at the end of the month and charge far more than they should. They buy clothes when they have clothes they haven't worn in years. They take vacations to places they cannot afford to go, and while there they spend money they don't have.
Americans don't have a personal debt problem. Americans have an impulse control problem.
