Creating a Debt Culture

Sarah Jaffe recently reported that consumer debt exploded in June, rising to alarmingly high levels. For all that we are allegedly in an economic crisis where credit is hard to access, consumer credit is mounting at increasingly speed, and that is a very bad sign. This is not the sign of profligate borrowing to support excessive lifestyles; David DeGraw points out that many people are borrowing to make ends meet because they are not making enough money to support themselves. People are borrowing, and debt is on the rise, because they are desperate. This about people living with their backs against the wall who have a choice between applying for another credit card and not being able to support themselves, and their families, for another month.

Consumer debt in the United States was a topic of concern even before the downfall of the economy, although it was mostly a subject of whispers and unease, rather than open discussion. People in the United States were carrying very high levels of debt, which was often attributed to a consumer lifestyle and entitled attitudes, the belief that people should be able to buy whatever they wanted on credit because they deserved it. That’s clearly not the case with the current debt numbers, as consumer spending is still down, which suggests that consumers are replacing wages with debt to cover basic living expenses. This is not good.

It also suggests that there may be more behind the previous consumer debt numbers than was stated and discussed. People in the United States have been struggling with wages that do not meet their needs since long before 2008. Wages have been depressed as costs of living fall, and of course government benefits have long lagged well behind inflation. People who were taking out large amounts of debt might have been caught up in a heady fog of consumerism, or they might have been trying to support themselves. It’s hard to get a good look at facts behind these numbers, now.

Debt is a slippery and harsh master. People borrowing money to meet their living expenses face an ugly set of circumstances. As they borrow, the costs of debt service rise. They don’t have the money to keep up with their payments and manage their debt, which means that may have to take out more debt to pay the existing debt. Or they start to fall behind on payments and are penalised. Their access to credit is restricted as they lose good credit ratings, but they still need to borrow money. Which means they turn to alternative sources of lending, which means they’re exposed to exploitative interest rates and sleazy lending practices.

Once people start to slide down the slippery slope of consumer debt, it is extremely difficult to recover. It can take a decade, or more, to pay off debt, and that’s assuming people are able to find jobs that support them and cover their debt, which is not a given in the current economy. If people had access to those jobs, they’d be in them, and they wouldn’t need to go into debt to pay their utility bills and buy food. People forced into the underclasses by consumer debt rarely get out from under their mounting debt service obligations. They are trapped, and their opportunities dwindle.

Having bad credit doesn’t just mean that you can’t get money when you need it. It can also limit access to housing, government assistance, and other benefits. People in dire straits with consumer debt may have nowhere to turn, which creates an atmosphere of desperation. There are no jobs, there is no money, yet wealthy people are all around you, profiting from your debt. Making money from your suffering. This is a recipe for explosion, like the violent riots in London that reflected the anger of a growing underclass heavily stocked with youth facing record highs in unemployment numbers.

All of this money is going somewhere. Debt servicing costs enrich the pockets of banks, which is why banks keep consumer credit markets flowing. It benefits their shareholders and owners, concentrating wealth in the hands of the top one percent. One consequence of the economic crisis has been breathtakingly rapid increases in economic disparity, exacerbated by situations like this. Consumer debt is not occurring in a vacuum; it’s a direct consequence of how the nation has chosen to prioritise economic issues. Those some banks that took bailout funds are profiting off the backs of people in the United States.

An increasing state of economic fragility can be seen in many regions of the country. Under that fragility lies anger, simmering, waiting for a reason to boil over. Debt culture contributes to this. People who had minimal or no consumer debt before, who may have prided themselves on not taking on debt, are increasingly being forced to apply for credit cards, home equity loans, and other forms of credit. These same people are getting angry; they lived a modest, reasonable lifestyle, they didn’t overstretch themselves, and now they’re being punished for it and forced into financial circumstances they find untenable. There is a growing understanding that the goals people worked for have evaporated, that this isn’t just something that affects Someone Else.

This has a tendency to create rage, bitterness, resentment, fury. That increases every month with the statements from the credit card company, the growing cheques that have to be written to keep creditors at bay. The eventual realisation that there is no more money left for cheques. This is it. The end. Nothing remains. Bank accounts have been scraped clean and all that is left is a stack of bills. This is the monster that society has created.