Deficit Spending by the American People

I read and commented on a blog recently that was talking about the quality of life in the United States and how it seems to be getting better.  I do agree that it has been getting better, but we have been seeing side effects also.  One of these side effects is skyrocketing bankruptcies.  It is getting incredibly easy to get credit cards, secured and unsecured loans, lines of credit, and other forms or credit.  People are take advantage of these and learning the hard way that it is way too easy to get carried away.
In 2003, bankruptcies “rose from 1,611,268 in the 12-month period ending March 2003 to 1,654,847 in the same 12-month time period in 2004.  The number of filings was down slightly from the record 1,661,966 bankruptcy cases filed during fiscal year 2003.  Business filings in March 2004 totaled 36,785, down 2.0 percent from the 37,548, business filings in the 12-month period ending March 31, 2003.  2,144,000 people filed bankruptcy in the year ended December 31, 2003.  There were 1,625,208 personal bankruptcies filed in the year ended December 31, 2003. With this information, we can conclude that 1,625,208 people filed bankruptcy in 2003…except one little fact, the fact that t he statistics include joint filings, which means that two people filed for bankruptcy as one.  31.9 % of the filings for the year ended June 30, 2001 were joint filings of husband and wife.  With this in mind, there were actually 2,144,000 people who filed bankruptcy in the year ended December 31, 2003.
Some might say that that isn’t that many people declaring bankruptcy, but when we take into consideration that in the 1980’s, bankruptcy filings were about 300,000, we must be doing something wrong.  This nation is truly a nation of debt.  The average person has 2.5 credit cards in his or her wallet. The average credit card debt has increased thirty-five percent from last year to three thousand two hundred and fifty dollars per person. If there is two hundred and fifty million people in the United States, that is eight hundred twelve billion five hundred million dollars in deficit spending by Americans per year.
I strongly believe that Americans spend way too much money that they don’t really have.  The main problem with credit is that people end up becoming slaves to the interest owed on the money they spend on credit.  I know a lot of people my grandfather’s age that not only own everything they have, but have plenty of money in the bank for whatever happens.  I only know a few people my father’s age that own everything they own, and when something happens, it goes straight to the credit card.  I think that my generation and those after us will not only work their whole lives to keep what they have, but they will die broke and lose everything because we are doing all we can just to keep up with the minimum payments on our debt.


Dr. Tufte said...

In general, yes I think credit card spending does get away from many people. There is a literature on a more advanced topic called hyperbolic discounting which touches on some of these issues.

I gave a different take on this in response to a similar question raised about a year ago. Go to this site, and click on the first question to see my answer.

Rolf Tiblin said...

I agree with Micahnay’s closing paragraph. The reason that people of his Grandfather’s generation have a majority of everything they own paid for comes from living through the depresssion. They had to learn the hard way about staying out of debt and the importance of saving for a rainy day.
It’s true that in today’s society credit is very easy to aquire and the penalty for not repaying the debt is very light. The rule that society no longer has to adhere to is resonsibility for one’s actions. The moral character of individuals has also declined. No longer do those that burden others with their monetary irresponsibilty feel any guilt.
In good times the burden of others irresponsibility seems less noticeable. In bad times things change a lot. Not only do those that file bankruptcy place the burden on those they cannot repay, they also place a larger burden on society with fewer resources for themselves. Our parents said save for a rainy day and for when you’re old and grey. I think they’re right.

kavindavis said...

Credit cards are not the only thing that created more bankruptcies. In the case of my parients, they filed bankruptcie becouse they almost got a devorce and none of them paid the bills for about three months. Do that and see how easy it is to get yourself out of the hole. I've always felt that our increasing devorse rate has efected bankruptcies also, just not credit cards.

Ned said...

I agree that debt causes problems, and that we have way too much of it today. I also think that its been a big help to our economy. The other day in class we talked about how it was possible to create multiple assets and liablitities out of a single good. All this borrowing and lending to eachother has to do some good. If we'd had to save for what we needed, the country as a whole would not have purchased as much as it did. The companies would not have grown as they did, and so on. On the other hand there may be a rebalancing act in the future.

C-Dizzle said...

I agree with Micahnay. People are so concerned with having the “nice” things on credit in life that forget how good it feels to actually work for what you have.

I personally have two credit cards, just shy of the 2.5 the average person has. I have a zero balance on both of them though. I use these cards to pay for bills and such every month. What I do though is pay off the card every month. I try never to spend on my credit card what I don’t have in my checking account to cover the bill.

By paying off the cards every month, I’m living in the ‘now’. Many people are now paying off bills they accumulated months and even years previously making them live in the ‘yesterday’. It must be sad living in the yesterday knowing you’ll never see a cent from your current paycheck because you’re paying off some past good or service. Eventually, the people living in yesterday get so far in the past on their bills they have to claim bankruptcy. It’s a sad thing.

I continue to hold to the principle taught to me by my parents, “if you can’t pay for it in cash, you must not need it.” (There are some exceptions such as home loans and such.

Dr. Tufte said...

Grammar problem in Rolf Tiblin's comment, and spelling problems in Kavindavis' and Ned's comments.

Food for thought: why does Utah have the highest bankruptcy rates in the nation? We're rarely first or last in anything!