Economic Find: Mired in Debt

In 1950, the total debt of American households amounted to around one-third of their income. By 2002 it reached 100%. Although consumer debt has fallen in the past few years, by historical standards it is still extremely high.

Some people borrow too much to “keep up with the Joneses.” Others fall into debt due to a health crisis or unemployment.  Once overburdened with debt, it becomes increasingly difficult to find relief, especially in light of today’s high unemployment rate.  According to a study conducted by Demos, working-age indebted families are more likely than families without debt to be unemployed for at least two months in the last three years.

What are some possible solutions to this national crisis? According to Demos, we can promote savings via modest government subsidies to help Americans build their emergency funds. (According to the National Foundation for Credit Counseling, 61% of Americans don’t have even $1,000 in savings.)  We also can strengthen social insurance protections, ensure affordable and comprehensive health care, and hold the Consumer Financial Protection Bureau, which President Obama recently instituted to protect American debt holders, to task.  Finally, some economists are calling for the federal government to broker debt relief.  “We’ve put this off for too long,” said L. Randall Wray, a professor of economics at the University of Missouri-Kansas City. “We need debt relief and jobs and until we get these two things, I think recovery is impossible.”
 
Household Debt
 
Based on the 2006 Field Guide to the US Economy. “Investing for the Future.” 9.4: 150.
 

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Updated and Revised by Member Economists Zhongjin Li and Sue Holmberg

October 2011

 

Source:

Board of Governors of the Federal Reserve System (2010, Table B.100, November 20) and U.S. Bureau of Economic Analysis (2010).

 

Sources:

Garcia, Jose and Wheary Jennifer. 2011. “Understanding the Debt Difference: Why Some Low-and Middle-Income Working Families have Card Debt and Others Don’t.” Demos Economic Opportunity Program. http://www.demos.org/publication/understanding-debt-difference-why-some-low-and-middle-income-working-families-have-credit

Garofalo, Pat. 201. “On TARP’S Three-Year Anniversary, Economists Call for ‘Massive Debt Relief’ For the Middle-Class.” http://www.nfcc.org/newsroom/newsreleases/FLOI_July2011Results_FINAL.cfm

National Foundation for Credit Counseling. 2011. “Majority of Americans Do Not Have Money Available to Meet an Unplanned Expense.” http://www.nfcc.org/newsroom/newsreleases/FLOI_July2011Results_FINAL.cfm.