10 March 2003
By O. Max Gardner III
Trent Lott lost his job. About
800,000 unemployed workers lost their unemployment benefits. More
American laborers lost their jobs and joined the ranks of the unemployed.
And, the rest of us are about to lose what little money we have left.
Yes, even for the richest among us 2002 was a blue year for the blue chips.
These down days of the new Bushenomics never seem to end.
Senator Lott, of course, reminds
us of the cartoon character Pogo who once said, "We have met the enemy,
and he is us." Debt, and way too much of it, is the current enemy
of most Americans. Sure, we worry about Sadam and Nukes in North
Korea, but we are really more troubled about having our cars repossessed
and our homes lost to foreclosure. We fear the phone. We dread
opening the mail; not for fear of anthrax spores but for a summons or certified
letter from a collection lawyer. Homeland security, after all, begins
at the front door.
Consumer debt is nothing new.
The current amount of consumer debt, however, is not only something new
it is something off the historical charts. The Federal Reserve Board
is reporting that through October of 2002 Americans rang up $1.7 trillion
dollars in personal debt, with $724 billion of that in unsecured forms,
such as credit-card debt. The sheer amount of this debt is indeed
frightening. Just ask the Russians, since 1.7 trillion is almost
4 times their gross domestic product.
Even more frightening than the
current consumer debt is the prospect of ever paying it all off.
The math is quite simple. If every American were to stop credit-card
spending tomorrow and cut-up their plastic money, it would take them more
than five decades to wipe out the $724 billion dollar tab. That's
50 years of religiously making those minimum payments on time each month
for 600 consecutive months. And, along the way, the banks would collect
another 3 trillion more dollars in interest. Not exactly "chump"
change.
Why have the banks allowed Americans
to charge such astronomical sums on their credit cards? Because the
credit card business is quite frankly the most profitable legal enterprise
in the United States. Talk about predatory lenders, these guys created
the model for the soak-em-till-they're-dry business plan. Even though
the banks wrote off $3.9 billion in credit-card debt in the third quarter
of 2002, the FDIC reported that bank profits were up 34.8% during these
same three months. How can you lose billions and make billions?
It's really pretty simple. You borrow the money from the Government
at 1.25% and then loan it out to consumers at 29.99%.
Ultimately, as long as the banks
are allowed to make more money than Tony Soprano, there will be little
incentive to put the brakes on the problem of consumer debt. And,
as long as the banks keep stamping out more plastic money the further we
move down the road to financial ruin. While tax-cut fever for the rich
and famous grips Washington, many States now face their worst fiscal crisis
since the Great Depression. This can only mean higher sales taxes,
increased property taxes and numerous new local governmental fees and charges
for the blue collar workers.
We may be able to delay the surgery,
but this type of financial bleeding will just not go away. For example,
take this problem out 10 years and you will have millions of baby boomers
who will not be able to retire because they are carrying all of this debt.
Then, when they hit 65 things will really get tight when their health insurers
cancel the private insurance policies. The boomers will they find
themselves stuck in the Bermuda triangle of too much debt, too many medical
bills with no private insurance, fewer services by their state and local
governments, and substantially more state and local taxes.
Hang on to your wallets.
It's the Perfect Storm and it's coming!
O. Max Gardner III is the Grandson
of former North Carolina Governor O. Max Gardner and practices consumer
bankruptcy law in Shelby, North Carolina.
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