Giving Credit Where It’s Overdue

Is it just me, or do you feel a breeze?  Maybe calling it a gale would be more appropriate, but it’s the overdraft.  We have been experiencing a financial typhoon which continues to wreak havoc over a wide swath of the global population.  While this storm has many causes, one of them is the persistent over-consumption by Americans in the first part of this century.  According to a study made by Dynan and Kohn of the Federal Reserve, starting around the year 2000, our domestic income began to stagnate even while we increased our debt.  They demonstrate an increase in personal debt to income ratios from 94% in 2000 to a staggering 133% by 2007, meaning a higher portion of earnings went to servicing debt rather than new consumption.  What did we do?  Kept borrowing!  Mintel Comperemedia reports Americans were inundated with 8 billion new offers to sign up for a credit card in 2006 alone.  For the three years starting in 2003, we borrowed $2 trillion by refinancing or opening home equity lines of credit.  When jobs were lost and values of both property and portfolios plunged, the bills came overdue.  Now the party is over and too many of us have a hangover.  Perhaps the Fed didn’t remove the punch bowl soon enough.