Too Much Debt

I am still fuming about the Fed rate cut, and as I read around on various money news sites, I keep seeing a little phrase that just irritates me to no end: the notion that our current economic problems here in America are “caused by” the subprime mortgage debacle.

The subprime mortgage mess isn’t a cause, it’s a symptom.  It’s like saying your fever is the cause of your illness, instead of addressing the underlying root problem.  In the illness case it would probably be a viral or bacterial infection.  In the economy, the root cause is TOO MUCH DEBT.

Consumers are overextended like never before: zero down adjustable subprime mortgages are only the tip of the iceberg.  There’s auto loans, there’s credit cards (and more credit cards), there’s personal loans, there’s HELoCs, there’s HELs, and worst of all, there’s loans against your retirement savings (for those who have any retirement savings).  With so many different ways to dig yourself into the debt hole, is it any wonder the economy is now flailing?

Consumers aren’t the only ones with the debt problem: businesses are now being described as “overleveraged” which I guess is a fancy term for being too far in debt.  From what I have been reading, the overleveraging is at least half the reason for the financial markets’ volatility.  The other reason I am seeing is sort of related: no one is sure how much these mortgage backed securities critters that all the subprime mortgages were packaged into are actually worth, or just how risky they are.

We can’t leave our government out of the debt-binge party either.  Just how much of a budget shortfall does the government really have?  Is anyone even sure anymore?  The numbers quoted make my head hurt and eyes glaze over, and some watchdog groups claim those numbers are way under actual.

Basically, it all boils down to too much debt.  It’s like a long weekend fifteen kegger frat party, and now it’s the first day back to class and everyone is waking up with a hangover.  Instead of admitting to drinking way too much, everyone is saying it must have been  because the beer was so cheap that they are hung over.  Instead of admitting too much debt is the problem with the American economy, people say it’s the housing bubble and subprime mortgage contagion that is spreading.

Just call it like it is: the American consumer has too much debt.  American businesses have too much debt.  And the American government sets the standard for having way too much debt.

So what is the solution?  Gee, if I had that answer I would be making a whole lot more than minimum wage plus tips!  On the personal level, use your so-called “economic stimulus” check to start digging out of debt as you make a budget and get your personal finances under control.  I really don’t see much of anything the average person can do about the business side of things, and as for government: VOTE.  Vote even when the choices stink (like they tend to do).  And don’t wait for the government to help you, they have their own debt to worry about.