The American way of debt

However you calculate it, we owe more than we used to. Good thing the government's cutting us some checks


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Andrew Leonard
April 14, 2008 10:42PM (UTC)

A new poll suggests that Salon readers are not alone in planning to use their economic stimulus checks to pay down their debts. 41 percent of poll respondents plan to apply the income to balancing their personal books, while another 19 percent say they will save the money.

Harvard's Elizabeth Warren says it is easy to understand why, pointing to the same alarming chart on the growth of household debt in the United States since 2001 that How the World Works referenced last month. U.S. households now owe nearly $14 trillion dollars.

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Warren:

A family that is paying 18.9 percent on a balance of $8000 has a lot less money left over for basic purchases, much less any money to buy anything new.

Alan Greenspan thought that it was great for Americans to continue spending in the 1990s and early 2000s because it kept the economy healthy. But it didn't keep the economy -- or the family -- healthy. Instead, it meant that we had a false boom, growth that was financed out of tomorrow's earnings. Now the bills are coming due.

That $8000 number jumped out at me, because I cited it as the figure for average household credit card debt in my story, "The Great Depression: The Sequel." But a reader directed me to an MSN Money article by Liz Weston that takes a hard look at the debt figures and finds them misleading. Weston tracks the 8000 number to data crunched by CardWeb.com from 2001, and argues that most Americans actually have much smaller outstanding balances. According to Weston, 23.8 of American households have no credit cards at all, and another 31.2 percent of households surveyed by the Federal Reserve paid off the entire outstanding balance on their most recent credit card bill. "Of the households that did carry a balance," asserts Weston, "the median amount owed was $1,900."

So, the same numbers that add up to average household debt equaling $8000 can also be interpreted as stating that most American households owe less than $2000, (once you count those without credit cards, those who pay off their bills, and those who fall below the median.)

No question, I should have done better in differentiating between median and average numbers. But I don't think complacency is in order, or that Kevin Phillips' dire warnings about debt in his new book, "Bad Money," can be ignored. As the above-referenced chart on total U.S. household indicates, the real boom in borrowing in the United States has occurred since 2001. Which means that both the average and the median numbers are rising. CardWeb, for example, now reports that the average U.S. household is carrying $9,840 in credit card debt, up 10 percent since 2004.)


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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