debt

I have been thinking about the banking crisis that has been so much in the news these days. In a nutshell, many people took out loans on the assumption that housing values would always keep going up and/or the assumption that they would not have any financial downturns like a lost job or health problems, and now find themselves defaulting. Banks also underestimated the risks of default if these very things happened, and are now looking to the government to help them remain solvent. I have several thoughts on this subject, so I may spread them out over a few posts since Anastasia says my blogs are often too long and too infrequent. To start with, think about the magnitude of the current problem, which goes far beyond home mortgages but is instead a society wide pattern. I was floored yesterday to read that the average household has $8500 in credit card debt, that translates into massive amounts of interest payments that are hard to get out of. But the same pattern exists at the public level. Wikipedia lists the national debt to be about $30,000 per person and $60,000 per household. So when you think of how much money you owe on your mortgage, credit cards, car loans, etc. don't forget your share of the public debt. I don't think all debt is always wrong, but I think there is clearly a society wide pattern going here, whether with houses, credit cards, or government bonds that adds up to a persistent tendency to spend beyond our means. More in the next post.