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Thrifty Families and Other Lies
Like Their Government, Americans Live on Debt
NEW YORK--During his State of the Union address President Obama repeated this ancient canard: "We have to confront the fact that our government spends more than it takes in," he said. "That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same."
Republicans have used this "families balance their budgets, so should government" line for years. Now Democrats are doing it too. Everyone is jumping aboard the pseudo-austerity bandwagon. (Why pseudo? Neither party really wants to balance the federal budget because it can only be done by bringing home the troops, shrinking the Pentagon by 90 percent, ending corporate welfare, and soaking the rich--i.e. major campaign donors--with higher taxes.)
The family budget talking point is a fascinating meme that reflects a rarely considered national blind spot. As with other cases of mass denial (we think we're generous do-gooders around the world, foreigners see us for the crazy mean torturers we also are), we give ourselves more credit than we deserve.
We Americans value thrift and personal responsibility. We believe we should live within our means. These cultural ideals stem from our Puritan history.
But we don't live up to our ideals. Not even close.
Americans are up to the ears in debt.
Four out of five individuals have at least one credit card. The average family has an outstanding balance of $10,700. It spends 21 percent of its monthly income to pay interest on that balance.
The average American family has assets: It owns a house worth $160,000. But it owes $95,000 to the bank. As the housing market continues to crash, equity shrinks.
Our average family's savings are virtually nonexistent: $3,800 in the bank, no retirement account whatsoever (for half of families, average retirement savings $35,000 for the other half), no mutual funds, no stocks, no bonds.
The claim that American families live within their means is a joke.
To be fair, it's not entirely their fault. The typical American family only earns $43,000. It's hard to buy much of anything, much less the house that embodies the American Dream, with that. And it's impossible to save.
So they/we borrow.
As grim as a life of indebted servitude may seem, imagine what the American economy would look like if families really did live within their means, spending no more than they earned. No debt. No credit.
Markets for big-ticket items--homes, automobiles, major appliances--would crash and burn. Countless businesses would go under.
According to the National Association of Realtors 23 percent of homebuyers paid cash in January. That's more than ever before but that still leaves at least 77 percent relying on mortgage financing. (Why "at least"? Most "cash" transactions include money borrowed from banks and credit unions.) Take 77 percent of purchasers out of the buy side of the equation and million-dollar homes would be worth five figures.
Pop! Credit is the biggest bubble of all.
If credit went away, most Americans' biggest asset would vanish. Everyone would be "under water" to their lenders. The burbs would soon look like Afghanistan.
The same goes for cars: At least 88 percent of buyers take out a loan.
What would happen if these buyers had to save actual cash money before they could hit the showroom? They wouldn't buy a car. Air would get cleaner but the economic collapse that began in 2008, which has put one out of five Americans out of work, would accelerate dramatically.
Two-thirds of the U.S. economy directly relies on consumer spending. People can only purchase goods and services using one of three sources: income, savings or credit. As we've seen, the average American family doesn't have savings. Its income has been falling since 1968.
That leaves credit. If consumer credit vanished, the corporato-capitalist system currently prevailing in the U.S. would deteriorate from its current, merely unsustainable form into total chaos. Without credit cards and other loans citizens would seethe, trapped between the mutually irreconcilable forces of falling wages and the aggressive advertising and marketing of products they would never be able to afford. There would only be two possible long-term outcomes: revolution, or the ruling classes would be forced to pay substantially higher wages to workers. To corporate elites, the latter choice would be too unpalatable to countenance.
The typical American family cannot live within its means because it cannot earn enough to sustain its lifestyle. Were it to downgrade its living standards to a level it could afford, there wouldn't be enough consumer spending to drive the economy. This would force further personal austerity. Eventually we'd all be living outside.
You know what's funny? Unlike the American family, the U.S. government canspend less than it earns. It can increase revenues by raising taxes. Unlike families, it spends trillions of dollars on stuff--wars--that it doesn't need and actually makes things worse.
It could even use its power to force employers to pay workers what they deserve. If the government did that, families might not need credit.
They could (finally) live within their means.
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Show AllThe public airways for which they do not pay to use, socialism.
It is not just the government and citizens that are living on debt, it is also business. Oh, some businesses are flush with cash, but not all. All financial institutions are run on margin with only a fraction of loans backed by actual reserves. GM and Chrysler were drowning in debt. Others still are. Many corporations remain profitable only by laying off workers, squeezing the ones that remain and shorting pension funds. No wonder it still smells like a recession instead of a recovery.
After WWII, the United States had half of the capital assets in the entire world. The rest of the world caught up. We offshored one part of our economy after another to pursue the lowest bidder so that we could continue to pretend that we were rich. Looks like the party is over. In the past few weeks, there are signals out of The Capitol that both parties may be coming to understand the depth of our crisis and are actually beginning to attempt to form a new consensus.
Unfortunately, the new consensus seems to be built of the pieces of their old tired positions that they are unwilling to give up. The same policies that got us to this pass are unlikely to provide a way out. We are probably in for a nasty decade or two of continuing recession or worse. If it is that nasty here, the poorer nations of the world will be in real danger.
In twenty years, our economy and our society will look very different. No one really knows what things will be like then. My best guess is that many of the things we take for granted today will be distant memories, that the standard of living we seem to think we deserve will be gone. If we are lucky, we will transition to a simpler, more local economy. We will have less if we measure only money and material goods. But we may gain community and a slower pace of life in the bargain and be better off for it.
"more local economy" you mean "ghetto" or "slum" economies, because the rich guys aren't giving up their quest for globalization anytime soon. It works well for them. They are protected while the rest us are supposed to pretend that national pride will win the day.
I agree with most of this, but please think carefully when using the word "we"....many of us have nothing like what Rall speaks of and never really had a notion that we would....but we are still paying off all the debts......it is a "simpler" life, yes, but one where I am not sure whether I will have sufficient protein tomorrow.....folks like me should NOT be paying off this debt!
The rich are the only ones who truly need to be forced upon an austerity program.
They are riding on a wave of TARP, free and low interest money that they've used to make life more austere for the rest of us.
"Our average family's savings are virtually nonexistent: $3,800 in the bank, no retirement account whatsoever (for half of families, average retirement savings $35,000 for the other half), no mutual funds, no stocks, no bonds...."
According to economic historian Michael Hudson, there is a class related aspect of the savings rate that hides reality. There is more savings going on than ever before, but it's mostly being done by the top 10%, especially the top 1%, of the economic pyramid. It's true that the bottom 80-90% have little or no savings, but the well-to-do have more money than they know what to do with.
Good article that applies common sense to all the errant nonsense in the media and among the politicians about the federal budget and the economy in general.
FDR had it right, and wasn't really concerned with repeating the platitudes of Wall St. like Obama is.
"Restoration calls, however, not for changes in ethics alone. This Nation asks for action, and action now.
Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources.
Hand in hand with this we must frankly recognize the overbalance of population in our industrial centers and, by engaging on a national scale in a redistribution, endeavor to provide a better use of the land for those best fitted for the land. The task can be helped by definite efforts to raise the values of agricultural products and with this the power to purchase the output of our cities. It can be helped by preventing realistically the tragedy of the growing loss through foreclosure of our small homes and our farms. It can be helped by insistence that the Federal, State, and local governments act forthwith on the demand that their cost be drastically reduced. It can be helped by the unifying of relief activities which today are often scattered, uneconomical, and unequal. It can be helped by national planning for and supervision of all forms of transportation and of communications and other utilities which have a definitely public character. There are many ways in which it can be helped, but it can never be helped merely by talking about it. We must act and act quickly.
Finally, in our progress toward a resumption of work we require two safeguards against a return of the evils of the old order; there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people’s money, and there must be provision for an adequate but sound currency."
http://historymatters.gmu.edu/d/5057/