Debt in America: the real problem
Hello, this is Darrell Castle with today’s Castle Report. Today I will be talking about debt, and I don’t mean the unpayable, unimaginable, debt of our various National, State and local governments. I’m going to address the plight of the Average American with regard to debt, and discuss how lives are being affected in ways perhaps we haven’t thought of before. I am, I submit, very qualified to discuss this subject, having been a bankruptcy lawyer for now close to 39 years.
Economy still slow
During the second Obama administration, and now during the Trump administration, we have been told repeatedly that we are in an economic recovery and that things are really looking up. That might be the case for some, but for the average American that is not the case. Nearly half the men ages 18-34 now live with their parents, and about one third of all Americans of that age group live with their parents. We are told that the generation now 18-34 is the first generation of Americans to have a life less well off economically than their parents.
In cities like Seattle and Los Angeles, hundreds of homeless camps line the downtown streets, bridges, and overpasses. In Los Angeles more than 14,000 people live outdoors on the streets of that city. Young people, the generation I just mentioned, owe 1.5 trillion dollars for their educational loans, 10% percent of which are in default. Americans in general, owe more than one trillion dollars on credit cards, much of which is in default. About one trillion dollars is owed for car loans, which lose value the minute you drive them off the lot. Last month the average price for a light vehicle was $31,720. That’s up 75% from the average selling price 20 years ago, but during that 20 years median household income increased by only 52%.
How do people make up the difference? By borrowing. Financing of the average new vehicle amounted to $30,945 last year, or 97.6% of the purchase price.
Spiral of debt
In America today, we have a group of people commonly referred to as the working poor, and their debt load has nearly quadrupled in the last 20 years as a percentage of their income. Most likely, that debt can never be paid off, and that is why they are often doomed to lives of poverty without any explanation of why. Taking on such huge debt loads is a very stressful way to live, and yet for many, there doesn’t seem to be any way out. I suspect that many of our society’s social problems are fueled by this incredibly stressful, anger-inducing situation.
This debt peonage has created a downward spiral on the everyday lives of Middle Class people. The mortality rate for working class white men, in particular, has risen sharply in recent years. Most of these deaths are from what have come to be called “deaths of despair”, primarily suicide, drug addiction, and addiction to legal opiates. There have been over 66,000 drug overdose deaths in the last 12 months. 70% of Americans are on some prescription drug, often to treat anxiety, depression, or suicidal thoughts. However, side effects from such drugs are often anxiety, depression, and suicidal thoughts.
Let’s go back for a moment and take a look at what is the root cause of the problem. It’s true that we have wealth disparity at levels unseen since the 1930’s depression years, with 10% of Americans owning 75% of the wealth. That situation is a symptom of the problem and not the root cause, but the real issue is what caused it.
The rich seem to get richer while everyone else loses ground, and that is not the way it’s supposed to work in America. A rising tide is supposed to lift all boats, i.e., a booming economy is supposed to be good for all but for many of us it just means more debt. It also means that the most traditionally stable part of our society, the middle class, is disappearing.
Middle Class wages were on a steady and upward climb, which consistently led to a better life year after year, and generation after generation. This upward climb has stopped and low income earners now make less, relative to inflation, than they did in 1980. The American worker has steadily improved the nation’s GDP year after year but has continued to lose ground himself. Production is no longer tied to income. Workers can steadily produce more and better products but that production is not being reflected in the income of the workers.
This phenomenon has been happening since around the time that President Nixon declared a de facto default on the nation’s debt in August 1971, by refusing to honor the pledge to pay the nation’s debts in gold or its equivalent. Removing the ties of our currency to gold allowed unlimited currency and debt at the stroke of a pen, or in today’s technology the stroke of a keyboard.
When given the option to borrow, countries and politicians will always extend the borrowing further and further. They have to fulfill their own vote buying promises, and that costs money they don’t have. The Middle Class suffers because the borrowing causes prices to rise on most things, resulting in an inability to purchase those things without debt. Credit and debt become the real currency in our new high technology, fiat currency world. The real effect of this new economy ,when taken in total, is to reduce the majority of us to debt peonage. The Middle Class, in particular, is so far in debt in so many different ways that it cannot escape, and thus is bound for life to the banking class.
Who can buy without borrowing?
For example, almost no one can afford even a used car without credit. The same thing is happening now in the auto industry that happened in housing about 10 years ago. Car loans are being made to people without any regard to whether the borrowers have any ability to pay them or not. Sometimes loans are made on cars without even checking the borrower’s credit rating. This can be done because, as in the housing crisis, the loans are packaged and resold as securities.
I have been contemplating taking one of my clients with such a substandard loan into court and arguing that, if the loan was made with full knowledge, or with reckless disregard of whether it could possibly be repaid, then it wasn’t really a loan but a gift. When you “loan” a wayward relative $100 and you know he will never pay it back, aren’t you really just making him a gift?
With student loans, the government has decided to make the debt non-dischargeable in bankruptcy so there is no escape for the person, with the often low value degree, from the massive debt that degree cost. In many situations now, the government has figured out ways to hold the former student’s degree itself as collateral, just as the bank has the car as collateral for a car loan. If the student loan isn’t paid, and 10% or roughly $150 billion dollars of them are in default, and the degree also requires a license, law for example, then the law license can be revoked. To avoid the problems associated with default the former student will usually enter into a lifetime payment of interest plan to resolve the matter.
No one has cash
We are often told that this is a consumer economy, but what does that really mean? Who has cash anymore? Almost everyone charges almost everything resulting in one trillion dollars of credit card debt, much of it at extremely high interest rates. In many cases, if not most, a person will have all three debts – car loans, student loans, and credit cards, and is often in default on all of them.
In his new book “American Jubilee” financial advisor Porter Stansberry makes the argument that the debt situation in America, with the Middle Class falling further and further behind, is causing the rising anger and hostility between various groups. Politicians take advantage of voters by convincing them that some other group is responsible for their failure to succeed when they can see others achieving success all around them.
A general cancellation of debt? Watch out!
He thinks that a kind of forced Jubilee is coming similar to the one God gave the ancient Israelites in the 25th chapter of Leviticus, when all debts were to be released every fifty years. This coming Jubilee will be agitated for and marched for, and demanded until some form of it is granted and that will be terrible for America he says. The stock market would be devastated along with all pension and retirement plans of many Americans. Companies would be swept away by cascading debt losses just as they were in 2008.
I will add my own commentary here to say that such an event would be a perfect way to introduce a new “world currency” good everywhere, and with it the governments of the world could recapitalize all those failed companies and pension funds and then own every means of production. I’m just speculating, but it makes sense.
Current consumption, future liability
In conclusion, let me give you a resource for further research. Read my new book entitled The Life Changing Power of Bankruptcy which will soon be available on Amazon for $8.99 but until it is I will send you a copy for $8.99 plus $1.00 shipping. Just send a check for $10.00 and I will get it right out or you can put it on a credit card and go further in debt by calling my law office. If you are a Tennessee resident, just email or call me and I will send it to you for free.
Finally folks, the best definition of debt I can give you is this; debt is current consumption converted into a future liability. That’s true for us and for government.
At least that’s the way I see it,
Until next time folks,
This is Darrell Castle,