The report on delinquent debt in America from the Urban Institute is worth a closer look. Washington is one of only three states with less than 4 percent of people with a credit file having past-due debt. Seattle, at 3.5 percent, is one of the healthiest metros.
But nationally 5.3 percent have a credit-card or other non-mortgage loan that is at least 30 days late. A staggering 35 percent — 77 million Americans — have debt in collections according to their credit files. In Columbia, S.C., the number is 45.2 percent. In Nevada, it is 47 percent.
Debt in collection is most concentrated in the South. Nationally, the average debt in collection is $5,178. And this doesn’t even include the burden of mortgage debt, which has resulted in millions for foreclosures or people who owe more on their houses than what they are worth. Discussing the consequences of the high non-mortgage debt, the report states:
In addition to creating difficulties today, delinquent debt can lower credit scores and result in serious future consequences. Credit scores are used to determine eligibility for jobs, access to rental housing and mortgages, insurance premiums, and access to (and the price of) credit in general.
This explains much about why the economy remains so weak more than five years after the official end of the Great Recession. The banks were saved and confidence in the financial system was restored, as former Treasury Secretary Timothy Geithner recounts in his book, Stress Test. This was done with taxpayer money (since repaid) and the Federal Reserve as lender of last resort. The latter, especially, is classic Walter Bagehot, the 19th century economic thinker extensively quoted by Geithner.
But the problem behind the recession wasn’t merely the banks and the need to restore confidence. It was also historic levels of debt, made worse by stagnant incomes and the typical household losing 36 percent of its inflation-adjusted net worth from 2003 to 2013 (inequality is not a mere slogan).
Here the thinker to heed is the great economist Irving Fisher, who pioneered our understanding of “debt deflation” as he sought to understand the Depression. Simplified and applied to our situation, it includes the pressure on debtors to deleverage — or default — but either way they are not able to fulfill their role as “consumers.” No wonder even dollar stores are in trouble.
Avoiding this situation would have required a larger and more sustained stimulus, along with major debt relief for average people and small businesses (both of which were done in the New Deal, helping considerably). But that didn’t happen. So the lesser depression will continue no matter the quarterly GDP numbers or size of corporate profits.
Wednesday Reading: Why can’t the banking industry solve its ethics problems? | The Upshot [My answer: lack of prison time for banksters and allowing big money to influence Congress]
Today’s Econ Haiku:
Amgen’s got the strain
The Wall Street bug must be fed
By killing jobs. Sick.
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