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In the Media

article imageOp-Ed: Drowning in debt — American arithmetic

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By Donald Quinn
Sep 16, 2012 in Politics
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The debt crisis has taken on a very personal face for the average American family. This piece takes a critical look at the situation faced by an average household every month, and the situation faced by a nation drowning in its own debt.
America is a nation drowning in debt. With an economy that has been in recession, and now supposedly in recovery Americans have spent more than their fair share on credit cards, are underwater in our mortgages, and simply cannot afford the higher cost of living that seems to be the blight of American society.
Recent studies have found that the average American household, with credit cards, is in debt to the credit card companies in the amazing sum of $15,956. This means that we owe, as of July, over $850.7 billion dollars in money that we have borrowed from the credit card companies. While statistics show that we as a nation are furiously paying down our debt, it cannot be argued that this is a vast and untamed sea in which we are paddling vigorously in a leaky life boat. The scary part is that experts predict that as soon as things start to look better, people will once again open up the flood gates and start spending more money on their credit cards. At least that is what the credit card companies are hoping for. But let’s put this in perspective for a second shall we?
The average median household income for an American family in 2011 was $50,054.00 which means the average monthly income is $4,171.17 before taxes. The average tax rate in the United States (Federal only) was 18.2%, add to that 7.65% Social Security and Medicare and you have an overall tax rate of 25.85%, and this does not count states with a state income tax which can range from 6% to 12% plus. The total take home, again not counting other withdrawals like state income tax or 401K plans, would then be $3,093.33 from which a family has to pay the mortgage or rent, gas for the vehicle, telephone or cellphone, water, electricity, heating or cooling for the home, car payments, car insurance, home owners or rental insurance, medical insurance, food, clothing, and random things like back to school supplies. Let’s keep looking at the arithmetic.
The average monthly payment for a house, which is unrealistic for those living in higher standard of living states and is taken down significantly by lower income parts of the country, is $1,061 according to Realtor Magazine. This however, is now after the bubble burst all over the real estate markets. Conservatively most mortgages acquired in the mid 2000’s were in the $1600 range and since that is when a large number of people bought homes, for the purpose of this article the number is $1,600. After making the mortgage payment the average family is now left with $1,493.33.
Cellphone or telephone bill for a family of four is roughly around $71 per person, or $200 plus for the family. Take away the cell phone bill payment and our family is now left with $1,293.33 Utilities can be averaged at $250.00 (Electricity $95, Gas $100, Water $25, Garbage $30) which now leaves the family with $1,043.33 from which they will pay approximately $150 in real estate taxes and $55 on property insurance. Out of the $838.33 left this family will spend a minimum of $250 on a car payment and an additional $100 on insurance for the vehicle, they will also need to put at least $150 worth of gas into said vehicle for a grand total additional expense of $500. With the $338.33 left the family must find a way to pay for food, school supplies, and other random expenses that an average family will experience consistently. No wonder 48.6 million Americans did not have health insurance last year, there is simply no room in the household budget to afford it. And we still haven’t gotten round to that credit card interest rate or payment either.
The average interest rate on a credit card for a variable rate card is 14.52% which means a family that owes $15,596 will owe the credit card company and additional $2,265 at the end of year (if they make all the payments on time and counting with simple interest) or a $188.75 payment at bare minimum. These may be averages but most families in debt will never see a rate of 14.52% and will find themselves paying premium rates of around 24%, in which case you can do the math for yourself.
Unmanageable debt burden placed on the US taxpayer
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Unmanageable debt burden placed on the US taxpayer
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Small businesses and companies are by no means exempt from the turmoil either.
Recently a judge in Washington State, Judge David Meyer at the small cause’s court in Renton Washington, made an interesting ruling based on Washington precedent. According to Judge Meyer intent to pay has nothing to do with ability to pay and a party (in this case a company) who fully intended to pay their debt when able had not done a good enough job because they had not already fully paid the debt. The judge refused to take into consideration bank statements, which were entered into evidence by the respondent, showing the company had no money. Nor did the judge consider repeated correspondence from the company to plaintiff acknowledging the $739 debt and promising to pay as soon as it was able, the day it was able in fact. Demonstrations by the company that they had made previous payments in good faith when they had the money were also brushed aside. When asked what the word intent meant, the judge stated that unless the company had made full payment (past tense), there was no intent to pay (future tense). The reason this is such an interesting case is this. As a nation we are sinking with debt, meanwhile lawmakers and those who are supposed to exercise judgment simply do not. Words like intent are taken out of context and made to mean something they are not. We are rife as a nation with Judges like this one, who simply do not understand that we as a nation have every intention of making good on our promises in good faith, sometimes however we do not have the means at that moment to make these payments. Inability, regardless of a judicial activist, is not a lack of intent. Sadly this simply does not help families or companies struggling with debt.
America’s national debt is at $16 trillion dollars and rising every single day. Meanwhile we do not seem to have a plan from Washington DC or the state capitals that begins to deal with this massive sword hanging over our heads. Why does this matter?
Let us take a lesson from history, America’s own history of using financial warfare very effectively. In 1965 when British and French forces invaded Egypt to prevent the nationalization of the Suez Canal by Egyptian forces, America faced a quandary. Unable to attack NATO allies, America’s President Dwight Eisenhower turned instead to economic warfare. The president ordered the Treasury Department to dump British Sterling into the international market in large quantities. This dump in turn caused large scale inflation in Britain and resulted in a massive shortage of reserves, typically used for imports. Unable to sustain this kind of attack for very long the British very quickly ordered the withdrawal of their troops from the region, and the French followed in short order. There are historians who cite this very moment, when Britain withdrew in the face of a financial attack, as the end of the British Empire. Countries like China, who holds over a trillion dollars in financial debt over the United States, could very easily use American debt as leverage in much the same way America itself did in 1965.
To the average American however, this is furthest from their minds when their own debts are mounting rapidly. Debt collectors are becoming more rabid and often more aggressive in their dealings with people who simply do not have the ability to pay.
According to Disparti Law Group that offers help in negotiating with debt collectors
If you don’t answer collection calls, things may get worse. While most debt collectors are skilled at pushing your buttons to elicit some kind of payment, by ignoring those collection calls altogether you may be giving the collectors an incentive to keep calling.
The situation continues to escalate. With all the election fervor the rhetoric is growing but solutions are slim and nowhere near reaching the man on Main Street. For now all we can do is watch, wait and work on our savings.
Posterity, you will never know how much it cost the present generation to preserve your freedom. I hope you will make good use of it. If you do not, I shall repent in heaven that ever I took half the pains to preserve it.- John Adams
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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