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Overspending Solutions- Government and Personal Debt

Government vs. Personal Debt-

It is easy to say, “Expect the unexpected.” Tell that to the famous financial institutions that were either swallowed up or disappeared completely during the crisis created by Collateralized Debt Obligations (CDOs) a few years ago. Not only did the bosses not see the problems coming but the staff were astonished that their seemingly secure and high paid jobs had gone.

The problems reverberated worldwide leaving many households facing the problems of no monthly salaries coming into the house to pay the bills whether mortgage, loans, credit cards or simple every day bills for food and utilities.

Things have improved and the recent USA employment figures fell below 8% for the first time since the crisis yet they remain stubbornly above the figure that would really be a sign that the economy is moving forward. In this environment few households can feel really secure.

Prior to the financial crisis, credit cards were issued pretty casually and the card companies were only too happy to have new clients who used their cards frequently and only paid the minimum monthly payment. After all, the high rate of interest on outstanding balances is the way that these companies make their money.

Personal Debt- Now That Easy Credit is Gone

While the days of  living on easy credit without a care for tomorrow has gone for most people, there are ways that a family can solve a budget shortfall… but it needs a good deal of thought and discipline. Credit scores are all important when it comes to getting personal loans at the most competitive rates. Anyone who has defaulted by failing to pay on time may find that their credit score precludes them from competitive rates of borrowing.

Spend Less and Save More

Governement Debt Personal DebtIt is amazing how prior to the crash everyone from the government on down thought that the answer to too much debt was… more debt.  The key of course is to spend less and save more.  These days households have started getting their personal debt under control either by tightening their belts or by defaulting on their mortgages and eliminating their debt that way . Of course it is preferable to live within your means to begin with but, in cases where the size of the mortgage  is the problem, the only solution is a smaller house (or renting).

As this chart from InflationData shows, household personal debt (dark blue) and financial debt (light green) have fallen as a percentage of Gross Domestic Product (GDP) but business debt (red) and State and Local Government Debt (purple) have remained about the same while Federal Government debt (light blue) has actually mushroomed since 2008!

Thus, total debt is almost the same as it was at the peak of the crisis. This means that while individuals’ personal debt situation is better the Government is actually much worse off!

Normally, the purpose of a financial crisis is to purge the system of debt and put everyone back on a sound financial footing. But because the government has instead decided that it is not subject to the laws of economics the crisis has not been averted but simply postponed.

See full article One Chart Explains Why Government Debt Is Dragging on the Economy

See Also:

Bad Financial Advice Abounds

Choosing The Best Bank

The Wealthy Buy Assets, the Poor Buy Liabilities, and the Middle Class Buy Liabilities Believing They Are Assets

What to Do When – Not If – Inflation Gets Out of Hand

What is Quantitative Easing?

State Employment and Unemployment Rates- September 2012

Misery Index

Current Employment Data