Mr. Smith: Duchamp, the Big Glass and Chronic Illness
Four out of five individuals have at least one credit card. The average family has an outstanding balance of $10,700. It spends 21 percent of its monthly income to pay interest on that balance. The average American family has assets: It owns a house worth $160,000. But it owes $95,000 to the bank. As the housing market continues to crash, equity shrinks. Our average family’s savings are virtually nonexistent: $3,800 in the bank, no retirement account whatsoever (for half of families, average retirement savings $35,000 for the other half), no mutual funds, no stocks, no bonds. The claim that American families live within their means is a joke. To be fair, it’s not entirely their fault. The typical American family only earns $43,000. It’s hard to buy much of anything, much less the house that embodies the American Dream, with that. And it’s impossible to save. So they/we borrow.
He does leave out those who live beyond their means by choice even though their income would allow them to live well within their means. Then he goes into what would happen if people would actually live within their means and stopped borrowing.
As grim as a life of indebted servitude may seem, imagine what the American economy would look like if families really did live within their means, spending no more than they earned. No debt. No credit. Markets for big-ticket items—homes, automobiles, major appliances—would crash and burn. Countless businesses would go under. According to the National Association of Realtors 23 percent of homebuyers paid cash in January. That’s more than ever before but that still leaves at least 77 percent relying on mortgage financing. (Why “at least”? Most “cash” transactions include money borrowed from banks and credit unions.) Take 77 percent of purchasers out of the buy side of the equation and million-dollar homes would be worth five figures. Pop! Credit is the biggest bubble of all. If credit went away, most Americans’ biggest asset would vanish. Everyone would be “under water” to their lenders. The burbs would soon look like Afghanistan. The same goes for cars: At least 88 percent of buyers take out a loan. What would happen if these buyers had to save actual cash money before they could hit the showroom? They wouldn’t buy a car. Air would get cleaner but the economic collapse that began in 2008, which has put one out of five Americans out of work, would accelerate dramatically. Two-thirds of the U.S. economy directly relies on consumer spending. People can only purchase goods and services using one of three sources: income, savings or credit. As we’ve seen, the average American family doesn’t have savings. Its income has been falling since 1968. That leaves credit. If consumer credit vanished, the corporato-capitalist system currently prevailing in the U.S. would deteriorate from its current, merely unsustainable form into total chaos. Without credit cards and other loans citizens would seethe, trapped between the mutually irreconcilable forces of falling wages and the aggressive advertising and marketing of products they would never be able to afford. There would only be two possible long-term outcomes: revolution, or the ruling classes would be forced to pay substantially higher wages to workers. To corporate elites, the latter choice would be too unpalatable to countenance.
I would say that's a fair synopsis of what would happen. He does leave out those how could live within their means but are expected to live like they make twice what they actually do. This is the case for some management. I know this to be true. This does not let these people off the hook by no means. However if business payed what they should, people could live without being heavily in debt. The government could force this issue, but it won't. It also shows how out of touch Washington is with the rest of the country.