The Foreclosure Society

Or, if you prefer, "The Owe-nership Society."

Slate's Daniel Gross reminds our MBA president that there are two sides to a balance sheet:

The major obstacle to greater ownership isn't a recalcitrant Congress or an American fear of investing. It's debt -- debt that the president and his ally, Federal Reserve Chairman Alan Greenspan, have done their best to increase. President Bush, despite having an MBA, has never shown much understanding of finances, and he has failed to recognize that there are two sides to the ledger: assets and liabilities. The defining financial phenomenon of President Bush's first term has been a vast increase in the amount Americans owe -- collectively and as individuals. ...

Gross also provides the numbers (courtesy of the Federal Reserve:

Total debt: $22.8 trillion (up from $18.1 trillion during Bush's tenure)

Federal debt: $4.15 trillion (up 22%)

Total household debt: $9.5 trillion (up 36%)

Mortgage debt outstanding: up 43%

Consumer credit: up 20%

State & local government debt: up 33%

President Bush likes to put a positive face on some of that debt, trumpeting home-ownership statistics -- the one economic measure that has continued on an upward trajectory during his presidency. Warren Vieth puts this in perspective in the Los Angeles Times:

Homeownership has increased steadily during Bush's presidency, thanks in large part to the lowest interest rates in 40 years. Yet mortgage foreclosures are near record highs, along with personal bankruptcies and auto repossessions.

Vieth also notes another statistic that indicates that all these record levels of debt will be even more difficult to pay down:

Inflation-adjusted median household income has fallen. Last week's census figures pegged the three-year decline at $1,535, with the losses concentrated in 2001 and 2002.

As Gross notes, none of this bodes well for the prospects of Bush's "ownership society":

Unlike the loan Bush took when he was on the board of Harken Energy, these debts have to be paid back. Let's say the income of individuals and governments fails to grow rapidly, as has been the case for the last few years. They will still have to service their debts. After making required interest and principal payments, there isn't likely to be enough cash left over for the government to make the necessary investments in defense and education, or for individuals to pay into 401(k)s and medical savings accounts -- the kind of ownership investments the president favors. If debt continues to increase at twice the rate of economic growth, we can expect more personal bankruptcies and home foreclosures, in which case people who recently became owners lose their assets.

The administration seems to think that if you don't answer the phone when the creditors call, this is just as good as paying off your debts. The ownership society proposals -- like most of President Bush's agenda and actions over the past 3 1/2 years -- are based on the idea that, in Dick Cheney's phrase, "deficits don't matter." The federal budget deficit doesn't matter. Record levels of consumer debt don't matter. Trade deficits don't matter.

Problem is creditors don't tend to see it this way. And Gross reminds us who our national creditors are these days:

To a large degree ... the debts of American taxpayers are now the assets of Asian governments. If the U.S. Department of the Treasury simply becomes a funnel through which American tax dollars flow to foreign central banks, President Bush's ownership society could become more of an Asian phenomenon than an American one.

Comments

[animus]

The essential purpose behind all these policies is to prevent poor people from accumulating assets. I can only assume that they think society wouldn't function if there weren't poor people. That, or they just hate the poor.

[cjmr]

Given the fact that the American economy has been pretty much based on people who can't afford it going into personal debt in order to "keep up with the Joneses" for the last 30 years or so, I wonder what would happen if everyone in the country could pay off their debts tomorrow and then live frugally and within their means for the rest of their lives...?

[Susan Paxton]

I keep wondering what will happen on the day when China decides to call in our notes (China owns a large segment of our ever-increasing debt). Party's over.

[lightning]

I think I finally figured it out. The Bushies quite consistantly get the "+" and "-" buttons on their calculators mixed up, or maybe they're broken. "Let's see. We have half a trillion in deficits, so we need a half a trillion in tax cuts to cancel it out."

[Miss Authoritiva]

cmjr:You asked, "I wonder what would happen if everyone in the country could pay off their debts tomorrow and then live frugally and within their means for the rest of their lives...?"

Flashback to Jimmy Carter's presidency, when he suggested/urged Americans to slice up their credit cards and throw them away to help win the war against stagflation. Quite a few Americans did, and the Very Big Corporations of America got really ticked off because even though the public saw them as manufacturers of cars or refrigerators or lightbulbs or whatever, they all had branched out into the credit card business. Carter had to back pedal, furiously.

We're not a manufacturing-based, agriculture-based, technology-based, or cash-based economy. We're a debt-based economy. With checks, we live on the float. With credit cards and personal loans, we survive on grace periods.

[J Mann]

I'd be interested to know more about the morgage debt situation. It could be good or bad, depending.

Good: People have mortgages they can service (total payout w/in 150% or so of their former rent) at long-term fixed rates, and are building up home equity in place of paying rent. They've had the foresight to buy a house they can live in for a while. As time goes by, if they don't move, inflation will move rents past their mortgages, and their living costs are therefore partially shielded from inflation while they build equity.

Bad: People have mortgages that they can just barely afford, as long as there are no unexpected expenses, and have their mortgages set at a floating rate or a rate that is about to float in the next few years. They've bought houses that they will probably have to sell within a few years, either because they will outgrow them or because they will have to move for work reasons. Either unexpected expenses, a rise in interest rates, or an unexpected move will force them into a distress sale, and transaction costs will put them tens of thousands of dollars in the hole vs. renting over the same period.

I suspect the story is more on the "bad" side than the "good," but I don't know.

[spiralsands]

When I heard that bUSH as Texas governor privatized public parks in Texas, a remark I heard during a convention interview made sense to me regarding the new buzzwords "ownership society". Some very rich man who claimed homes in approximately 5 worldwide cities stated that it would be a "glorious day" when Central Park in New York City is privatized. I guess the urban rich need to keep the riffraff out of their open spaces. Now, the theme "ownership society" means to me that bUSH will be selling off any public assets. There will be no public lands. No public airspace. No public airwaves.

[Scaramouche]

You see their plan is to bring about privatized debtor prisons so we can get the cost of labor down where we can compete mano a mano with China...

That's my story and I'm sticking with it!