Debtor Nation at Red Alert

It is a dark wonder that one of the gravest threats to our economy, rising debt --and I mean tons of debt, mountains of debt at every level--is an issue so rarely discussed in polite company. Perhaps the silence is due to the stigma attached; in a country where we're told boundless opportunities exist and unfettered "economic freedom" is the name of the game, failure to keep your head above water is damning evidence of an individual's lack of worth.

But while there's shame attached to our private debt-- over a third of Americans filing for bankruptcy have had to deal with the humiliation of having their electricity or telephone cut off--our elected officials in Washington shamelessly continue to pile up public debt of stunning proportions.

Most people fail to see that the sources of public and private debt are the same, or how the two are bound together by public policy. But if progressives can make those connections in the mind of the public, they'll have a real opportunity to show just how powerful and pragmatic liberal values really are.

Culture of Debt

Debt has replaced baseball as our national pastime; it's one of the few things we all share in common. From the poorest neighborhoods where "payday loans" and a host of other predatory lending schemes soak up usurious interest, to the wealthiest fifth of the population who, according to the Wall Street Journal, have the highest ratio of debt to disposable income, virtually all of us are in the hole to one extent or another.

In recent years, states have been issuing more bonds to make up for federal shortfalls, the federal deficit is projected to remain astronomically high for the next 10 years and consumer debt--and bankruptcies--have hit record highs. Tax code changes in the 1970s led corporations to pile on massive debt in the 1980s, a decade when junk bonds and debt-leveraged buy-outs dominated media stories.

Debt has become part of our culture, a product of a society bent on self-gratification now and future generations be damned. Like any cultural trend, we are constantly enticed to take part. From the endless pre-approved credit card offers that fill up our mailboxes to the home shopping shows' 'painless' lay-away plans, debt is easier and easier to incur. Wells Fargo advertised a credit card with an "easy-access" line of home equity credit as a way to help pay "for everyday expenses, like gas, groceries, clothes, etc," prompting a CNN reporter to observe that today, it is possible for Americans to "eat their homes."

According to PBS' "Now," personal bankruptcy filings increased 320 percent between 1980 and 2004. As I'm writing this, a baby born in America owes $26,000 dollars worth of national debt. Students graduate today with an average of over $20,000 in student loans and credit card debt, and those who borrowed to pay for a graduate degree come out of school with a median debt of almost $46,000 dollars--up 72 percent since 1997 according to Brendan Koerner, a fellow at the New America Foundation.

Average Americans--who managed to save almost 9 percent of their after-tax income following World War II-- are running in place in terms of wages and staggering under an ever-increasing debt load. A report by the Center for American Progress showed that while their incomes had fallen for three years in a row through 2003, families encountered "sharply higher costs for education, energy, housing, and health care." Making matters worse, they faced rising costs for the debt that they had already piled up.

Part of the explosion of personal debt was fueled by mortgage refinancing as people cashed in on low interest rates. But as much as we hear about the real estate boom (President Bush often notes that more Americans own their homes than ever before), the percentage of equity we have in our homes is the lowest it's ever been.