Editor’s note: This segment originally aired in Dec. 2010.
CLARKONOMICS: A new report from the Federal Reserve Bank of New York shows the amount of debt that the average household is carrying dropped by 1% in just 90 days.
Now, that may not sound like a lot, but it’s huge. It’s part of a process — step by step and month by month — to reduce the amount of debt in our lives. The reason our economy is so wounded, more so than anything else, goes back to the reckless lending from the banks that we as consumers were only too happy to take on in our lives.
At the time we went into the Great Recession more than 3 years ago, the average family was carrying debt more than double the historical amount versus income. We’re chipping away at that debt level now and it’s a steady, slow thing. Just as it took awhile to get in the mess, it will take awhile to get out.
I read an article in The New York Post that said the latest news from the Federal Reserve Bank of New York is a disaster for the economy. “Consumer buying power has been sucked out of the U.S. economy,” the newspaper wrote. “That is not good news as consumer spending makes up about 70 percent of the country’s GDP.”
Why such alarmism? Because the brain-iacs and the Big Money crowd want us to be drones and slaves who borrow and borrow until we exhaust ourselves and destroy ourselves financially. But it’s my belief the U.S. economy will do much better if our balance sheets are in fact balanced.
The good news is that overall, since the recession started, the typical family has reduced debt by 10%, which is a significant decline. So far, $1 trillion that we were carrying is no longer on our books, collectively.
As if to corroborate what the Federal Reserve is saying, the latest issue of Money Adviser, a Consumer Reports publication, has a new chart that shows more than half of people have reduced the amount they charge on credit cards, while a third have kept it the same.
You look at people who went into the recession not carrying debt, simply using plastic as a payment system. They have not changed their habits. They’re right where they were and that’s fine. Because the real problem, of course, is borrowing money that you can’t pay when the bill comes. Now the people who did that for years have set a new course…so how about you? If you haven’t yet, you’ve got to get that done, if at all possible.