According to an analysis by personal finance information company NerdWallet, American consumers owe a total of $11.85 trillion in debt. Part of that amount is arrived at by combining $890.9 billion in credit card debt, $8.17 trillion in mortgages, and $1.19 trillion in student loan debt. The sources of the information used in the analysis come from the US Census and the Federal Reserve.
NerdWallet also claims that consumer debt overall has increased by 1.7%, with student loan debt increasing by 7%. The average US household credit card debt is $16,140, which reportedly represents the average household’s third largest debt behind mortgages and student loans.
The implications of such a dynamic are just as troubling as the amounts. As Professor Liaquat Ali Khan of Washburn University School of Law notes, the intense level of indebtedness is a form of serfdom, with the money lenders of old running the show. Creditworthiness, as determined by credit monitoring services, now determines one’s social status and credit products are “sold as fantasies of power, comfort, and freedom.”
Professor Khan traces the recent rise of the money lenders and consumer indebtedness to the repeal of usury laws on the state and federal level. Previously there were tighter limits on how much interest a consumer could be charged on a loan – now people can be charged upwards of 30%.
Sadly, this reintroduction of usury and consumer indebtedness was not simply the triumph of backroom dealing by money lenders. Policymakers at the highest levels supported the expansion of consumer indebtedness, not just as an increase in opportunities, but as a method of control.
Former Federal Reserve Chairman Alan Greenspan infamously cited the value of worker insecurity in his testimony before Congress in 1997 saying “Atypical restraint on compensation increases has been evident for a few years now, and appears to be mainly the consequence of greater worker insecurity. The willingness of workers in recent years to trade off smaller increases in wages for greater job security seems to be reasonably well documented.” An indebted insecure worker can’t go on strike or make demands, she has to make her monthly payments or wreck her credit and, therefore, her life.
If it is any consolation, increasing debt loads has not been limited to households. Too Big To Fail bank Goldman Sachs recently reported that Corporate America is quietly re-leveraging and taking on massive amounts of debt again – like they did before the 2008 financial crisis.
So we now have a highly indebted consumer and a corporate sector jumping back into risky debt practices, what could go wrong?