But aren't both of these debts deeply connected? People pay with credit cards but default. Companies and banks go broke because of personal debt defaults. Government borrows money to shore up failing business with borrowed funds from other countries rather than local businesses showing real profits to stay in business. Business uses bailout money to give more credit to private citizens who cannot really pay. private citizens default...............Rinse and repeat. True?
Moe
Yes and no.
The US growth has been driven by consumer consumption since almost forever.
This means that if the consumer is debt ridden, then that consumer either defaults or cuts spending down to repay debt and basically stay alive. That is not good for the economy.
This in turn is a problem for the over all economy because it needs consumer consumption to drive economic growth and keep jobs.
This in turn means that the government has to step in to save certain "too big to fail" companies/banks because of the fear of the cascade effect. Having major banks go bankrupt would be catastrophic for the economy. This has to be done by borrowing money abroad if there is no nest egg (which there aint in the US).
However the government has a hell of an easier time getting credit than the average consumer or even company, because the government has a revenue stream regardless of the economic situation. The consumer or company does not have that option.
But it all comes back to the consumer. Because of the high personal unsecured debt ratio by the American consumer and the fact that most US consumer "wealth" is tied to their home which has fallen in value considerably, then you have a problem.
For one, the consumer can not get a new loan on the house because the amount of debt already in the house is either close too or over the actual value of the house. They cant repay the loans because the average American had up to the crisis a savings rate of under 2%. They cant get more credit-cards because the companies are not spitting them out like candy any more and those that have credit cards and do pay off their debt are having their credit lines cut as the companies de-leverage. And they cant get new loans because they are not "credit worthy" any more since the standard by the banks has been changed.
If we look at the numbers.. by the end of 2008 the average American had credit card debt of 923 billion dollars or about 8300 dollars per every man, woman and child in the US. On top of that you have the secured debt (mortages) of almost 10.5 trillion dollars as the end of 2008. From 1996 to 2007 the average American home went up 125% in price.. and has since fallen by quite a bit.
This in turn meant that the wealth of the average American has fallen because most of the average American's wealth is tied to the home, but the debt has not fallen, nor the interest payments and so on. This is a dangerous cocktail, especially considering the lack of savings by the average American.
Now saying that since the crisis started the US saving rate for consumers has jumped by several 100%, which under normal time would be good, but in the situation we are in, it is not exactly good. Credit card debt is also falling, for the first time since 1956... which is also good and then again is not. I say this because, with every dollar saved or dollar paid back, that is a dollar not consumed to drive the economy, because the banks are no giving out loans based on your savings or paying back of debt.. so far any ways. And the more is saved and paid back, the longer the crisis in the US will last.
Now at some point you will reach a situation where personal debt is down considerably and savings are high, and the question is if the consumer will have the confidence to start spending again and the question is how long will that take and how big a causality list will there be.
No matter how you look at it, and does not matter how much :spin: and "fog of war" by the right wing, the engine of the US economy will be and has been the US consumer, aka the average American, and the average American is in big trouble debt wise on average, in a declining job market.. and that means less income, which means less spending/consuming which in turn means no growth and loss of more jobs. And all this means that the US government is forced to go out and loan money to keep it running and stimulate the economy in a hope that it will draw out the US consumer to spend. But the government debt has no real barring on the economy per say, especially compared to the debt of the consumer. The debt of the US only has a barring when the rest of the world see's the US as a problem and not as an opportunity, and that aint going to change any time soon. Plus the rest of the world has far too much invested in the US to let it happen.. at least for now.
But basically American's have been living beyond their means for over a decade and it is now coming home too roost. On top of that the government (state, local, federal) have not saved up during the good times to help pay off the bad times, and instead it has actually cut its revenue via tax cuts while increasing its spending.... a brain dead move... and now that too is coming home too roost.
And no it is not American bashing, it is the cold hearted truth.. and I would say the exact same thing about the UK because they are far worse off than the US as it stands now.