Article 43


Monday, January 02, 2006

Truths On Deficit, Bankrupty and Credit Card Debt

We certainly look prosperous. All those new houses going up, all those SUVs clogging the roads, long line-ups at air travel counters filled with folks clutching the new best-sellers and decked out in the latest televised fashions. Things must be going great, right?

Look again

In the United States, the Center for Responsible Lending tells of a woman looking to buy Christmas presents for her grandchildren visited her first payday lender. That quickie two-week loan spun into a nightmarish cycle of debt that eventually cost her $1,780 for $700 cash received.

“We live in affluence by way of credit,” a Bangalore professor told The Hindu newspaper. Is the cost of indebtedness worth it?”

The American Dream is a risky hallucination. The American miracle has been bought on credit,” argues author Jeremy Rifkin. [GUARDIAN OCT 24/00]

According to the US Census Bureau, some 35 million miserable Americans spent last year experiencing POVERTY. Of the 12 million American families who worried they couldn’t buy food, one-third saw someone in the household skipping meals they couldn’t afford. An increasing number of American families are also foregoing food in order to cover medical expenses. The truth behind Bush’s economic recovery is that the world’s biggest consumer culture is being kept afloat with more than $1 trillion worth of credit card purchases every year. Just like their bankrupt federal government, Americans are rolling over their monthly credit bills into pyramiding debt that cannot be paid this side of the grave.

At this very moment, many of the 1.3 billion payment cards currently in circulation in the United States are being used to pay bills and ring up more purchases needed to fill a nagging void that can never be satiated by more stuff. For whatever reasons and there are as many excuses to spend as there are opportunities - the average American household juggles 13 payment cards. At least four of these are major credit cards with balances totaling $5,800 each month.

What happened to those easy and affordable rates of interest that grabbed our attention, our signatures and eventually our lives?

Only those clicking calculators realize that the real rates of compounded credit card interest cost costumers more than twice the price of the same item purchased outright with cash. Making the minimum payment every month will take nearly 40 years to pay off that $4,800 - for a total tab of $15,619.

The Federal Reserve calculates that more than 40% of US families spend more than they earn. According to the Fed, since 1995, almost all US family disposable income has gone toward paying debts.

Why are so many people in so much debt after 10 straight years of economic expansion - the so-called “miracle” economy that the mainstream media celebrated throughout the 1990s?Ԕ asks Sleaze magazines Matt Nichter.

Answer: Starting with national federal reserves - which are not federal and have little reserves - Big Banks have rigged the money game. “It’s no coincidence that record bank profits are announced at the same time as record household debt,” Nichter notes. Personal debt is central to the monopolization of wealth by a small minority.”

As the go-go 80s suffered dramatic devaluation in the austere 90s and nervous new millennium, explains Robert Manning, author of Credit Card Nation, “banks guided financially beleaguered citizens through the economic minefield of declining real wages, corporate downsizings and skyrocketing college costs with increasingly expensive revolving consumer credit.”

As a result, observe Teresa Sullivan, Elizabeth Warren and Jay Westbrook in The Fragile Middle Class: Americans in Debt, “What might have been provided by a more munificent system of unemployment insurance or more generous medical insurance is now provided by Mastercard and Visa.”

Go figure. The average credit card interest rate is 17.8 percent. Typical late and over-the-limit charges for consumers have tripled since 1994. Say Sullivan, Warren and Westbrook: ”The average 18 percent rate that consumers have been paying would have landed the credit card executives in the penitentiary 20 years ago. Today it lands the same executives in flattering profile stories in Forbes and Business Week.”

In order to pick our pockets, banks are stuffing them with credit cards. Corporate loan sharks mailed out 3.3 billion credit card offers in the United States alone last year - more than 30 for every household. Lacking alternatives to achieve our media-manipulated desires - or just to temporarily catch up with daily expenses - most of us have taken the bait. According to Nichter, roughly 60 million people in the US have a credit card balance at the end of every month of at least $11,500.

So do a comparable number of their British counterparts.

“With layoffs mounting, one missed payment can lead to late fees, jacked-up interest rates and intensified collection efforts - beginning a spiral toward financial ruin,” Nichter says. [SOCIALISTWORKER ONLINE JAN 11/02]

Debt counselors say that using temporary credit to meet monthly business expenses is a legitimate gambit to fuel increased income. But using credit cards to pay non-productive purchases is a no-no, they say, if those cards cannot be paid off in full every 30 days.

A sure sign of out-of-control personal debt occurs when you have to start using your plastic for recurring consumables like food and utilities. You’ll know youre really caught in the debt trap when you have to start borrowing to make pressing interest payments on outstanding loans.

Snared by payday lending, some five million Americans pay an estimated $3.4 billion out of their paychecks every year to loan sharks advancing partial payment.

Is it legal? Is it moral? In a country where the former head of Enron sits unmolested on a mountain of money stolen from thousands of now destitute employees, and where an ex-Halliburton CEO and current US Vice President receives a million dollars a year from his former company, which has been handed billions of dollars in no-bid contracts in Iraq - such questions seem as banal as the fall of a decadent Rome. Except that in today’s imperial America, cash advance predators are setting up shops in neighborhoods of low-income, minority and military families - charging annual interest rates over 400% to people who can least afford it.

If you thought student loans were bad, consider that most undergraduates are also carrying $2,200 in credit card debt. According to Nellie Mae, the nation’s largest maker of student loans, that hole deepens to $5,800 for grad students. Since many student credit cards have stratospheric annual percentage rates, the longer college kids wait to pay off their cards off, the worse it gets, Mae says.

Sophia Jackson, personal finance counselor for Consumer Credit Counseling Service in Durham, NC, describes how one of her student clients made an $82 credit card payment on an overdue bill - only to discover that a mere 79 cents of the payment applied to the card’s principal. The rest was eaten up by late fees and over-the-limit fees.

“In that scenario, you could pay on your balance for years and years and your balance would keep going up,” Jackson says. Instead of suggesting low income tax relief, or the kind of tax-paid childcare and health care provided in more compassionate countries, Federal Reserve Chairman Alan Greenspan urges Americans to re-mortgage their homes in order to keep making payments they cant afford now.

With a national debt exceeding $7 trillion, a huge and rising trade deficit, and personal indebtedness at an all-time high, Americans and the world held hostage by the greenback are standing at the edge of a financial abyss threatening the financial security of our families, and our children’s grandchildren.

Can some of the smartest money minds on the planet really be that stupid? Hardly, says TRUTHOUT’S Michael Meurer. On the contrary, the White House’s profligate policies are deliberately designed to bankrupt the nation, thereby forcing the privatization of public services in the hands of Bush’s corporate sponsors.

How did Bush do it? Sure, blowing up foreign neighborhoods and invading other countries is expensive. And gutting America’s tax base hasnt helped. But how the heck did he blow $12 trillion dollars in three years? Remember, thanks to Clinton’s $200 billion annual budget surpluses, a man who wrecked every business he was ever handed started his unelected presidency with a tidy $5.6 trillion surplus in the US Treasury. [USA Today June 15/3]

Maybe someone should call Switzerland.

With an example like this, no wonder Americans are running up their credit cards. But heres the rub: If you owe the bank $6,000 and can’t pay it, youre in trouble. If you owe the entire world $7 trillion and can’t pay it the’re in trouble.

Which could be why Dick Cheney says, “Deficits don’t matter.”


Posted by Elvis on 01/02/06 •
Section Dying America
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