April 25, 2019

Charge It

The National debt clock moves so fast that it is impossible to write down the balance accurately at any given time. It rolls along at about $45.00 per second and is now at $22,028,706,063,174.96 (that’s trillion dollars). As much as this staggering figure can tend to overwhelm us, in reality the U.S. consumers will pass this debt figure in a few short years.

Current Consumer debt is running $13.5 trillion dollars. This figure includes $9.124 trillion in mortgage debt, $1.457 trillion dollars in student debt, and $1.274 trillion in auto loans and over $1.645 trillion dollars in credit card debt. American spending is truly “out of control.”

The Federal Reserve Bank issues a quarterly report called the G.19 in which it reports on Consumer Credit outstanding balances. But it is also ironic that the same Federal Reserve Bank carries $3.997 trillion dollars in financial assets that it has accumulated in the wake of quantitative easing and other stimulus measures over the past few years. Eventually, the Federal Reserve will have to do something with this almost $4 trillion dollars in assets, and hopefully when it does sell these securities back to the banking system, it will not trigger a gigantic inflationary debacle.

We live in a society where debt in a way of life. There was an article recently in which a man accepted every credit card solicitation sent to him and at last count, he had over 40 credit cards and his holdings were still growing. The credit card industry is extremely profitable. Total earnings for the year 2011 for the entire credit card industry were more than $18.5 billion dollars. With Americans charging more than a trillion dollars each year on their credit cards, no wonder it is extremely profitable. Each time a credit card is used, a merchant pays a small fee. In addition, about half of all Americans habitually carry a balance on their high interest credit cards.

Credit card companies charge a fee from $29 to $39 for paying late or going over your credit card limit. The most widely used marketing tool is the zero-percent introductory interest rate offer. When the introductory period ends and the interest rate increases to 17% or 19%, the credit card companies earn significantly more profit as card holders tend to use the zero percent credit card more often than one charging interest. A second tactic used to increase profits is to require a minimum monthly payment of only 2% or 3% to encourage card holders to continuously carry a balance so the credit card company can rake in more profit.

To compound the debt situation, we have to add in the millions of retail credit cards that traditionally carry a higher interest rate of 25% to 30%. The number of credit cards just issued from the primary card network of VISA, MasterCard, Amex, and Discover is 636 million. The total number of credit cards in use during 2014 was 1.058 billion.

Americans are stuck in a perpetual debt cycle. Most students can’t afford college without a loan; most Americans can’t buy a car without an auto loan; a mortgage is a necessity to purchase almost any house; and the use of credit cards is almost a daily requirement from Starbucks to Walmart. Sadly, the cost of living is exceeding the incomes for most Americans and the only way that they can stay even is to substitute this financial shortage with credit. But our debt is growing. We, as Americans, are deep in debt. We, as a country, are deep in debt. I don’t personally ever think that I will see the day when we are not deep in debt. The number of our credit score is now more important than anything else. The debt industry is not for the faint of heart as it is an industry of trillions and billions of cards and dollars. 

According to current data, the U.S. personal bankruptcy filings increased 11% in the year 2018 and hit a record of 54,711 filings. 2019 is keeping pace and exceeding past levels of filings with an increase of 6% during the first few months.

Our debt situation has many facets. Our unsustainable debt is running $22 trillion dollars and it is growing. The 2020 budget proposed by President Trump contains spending at over one trillion dollars more than our Federal Government takes in. If nothing is done, the interest payments alone will double by 2023 and exceed our current military spending by 2024. Current interest on this debt is $479 billion dollars and, as stated, will double with a few short years.

Without a balanced budget, we are doomed. We can’t continue to spend at our current levels and just roll billions of dollars of debt forward. Our Federal programs are also running out of money. Medicare is a sea of red ink and Social Security will have to reduce benefits as early as 2034. Unless our Government cuts spending and takes a serious approach to its fiscal responsibility, we will eventually have to face the prospect of defaulting on our debt and face a form of national bankruptcy.

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Written by
Donald Wittmer

DONALD WITTMER is a retired business executive who held key roles in the automotive and banking sectors. For a time, he also served as a Fiscal Agency Manager for the Detroit branch of the Federal Reserve Bank of Chicago. He received his undergraduate degree from Cincinnati's Xavier University, an M.A. in business management from Central Michigan University, and earned certification in bank operations from the School of Banking at the University of Wisconsin-Madison. A husband, father, and grandfather, he teaches part-time at the Kent Place School for Girls in Summit, New Jersey.

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Written by Donald Wittmer