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Discussion Starter · #1 ·
It seems like part of the reason we're in such economic trouble, as Maple1 consistently reminds us, is that stupid people bought too many things they can't afford. I understand that the household debt-to-GDP ratio is at its highest point since 1929 (something like 100%), and that this is bad. But there are a whole bunch of things here that I don't understand. Does anybody understand this stuff? Can anyone explain it to me?

1. What makes up “household debt”? How much of it is overvalued houses, how much of it is reasonable investments (e.g., in education and training), how much necessities (like medical bills), and how much is flat-screen TVs and other crap that nobody really needs?

2. Is the reason for so much household debt that we as a society are greedy and unable to say no to fancy things? Or is it that consumers are making up for weak wage increases (in the working and middle class) since 1973? (Real wages for middle-class people have stagnated since 1973, if I remember correctly.) Both? Something else?

3. And finally, THE REALLY SCARY QUESTION: Consumer spending makes up 70% of GDP. If we stopped financing spending through credit, what would happen to GDP and the economy? If we all just stopped spending, why do we assume that things would get better?

Anybody? Bueller? I tried to use The Google, but didn't have much success.
 

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I can't really answer all of your questions but I have a theory about the following

2. Is the reason for so much household debt that we as a society are greedy and unable to say no to fancy things? Or is it that consumers are making up for weak wage increases (in the working and middle class) since 1973? (Real wages for middle-class people have stagnated since 1973, if I remember correctly.) Both? Something else?
I think one reason that household debt is increasing is just the shear variety of things that are available to be bought, that didn't exist in 1973. I think the big ticket items then was a house, a car, a stereo, a TV. And those weren't upgraded that often. Now there are computers which are outdated in two years, cable which we need to watch TV and for high speed internet, cell phones & service, ipods, GPS, DVDs. etc. I think a lot of these have taken their toll on household expenses.
 

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I can't really answer all of your questions but I have a theory about the following



I think one reason that household debt is increasing is just the shear variety of things that are available to be bought, that didn't exist in 1973. I think the big ticket items then was a house, a car, a stereo, a TV. And those weren't upgraded that often. Now there are computers which are outdated in two years, cable which we need to watch TV and for high speed internet, cell phones & service, ipods, GPS, DVDs. etc. I think a lot of these have taken their toll on household expenses.
Instant gratification is another reason. Not a lot of people save up to buy a big ticket item, they just charge.

As for outdated computers, cell phones, etc., I think a lot of it has to do with a lot of people wanting the latest and greatest all the time. I work on a computer that has Windows 2000, my computer is 6 years old, still works. My cell phone is 4 years old, still works. It makes calls, that I need it for. I really don't care about texting, I don't feel the need to be connected to the web 24/7, etc. Just because something is outdated, it doesn't necessarily mean it doesn't work any more.
 

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Instant gratification is another reason. Not a lot of people save up to buy a big ticket item, they just charge.

As for outdated computers, cell phones, etc., I think a lot of it has to do with a lot of people wanting the latest and greatest all the time. I work on a computer that has Windows 2000, my computer is 6 years old, still works. My cell phone is 4 years old, still works. It makes calls, that I need it for. I really don't care about texting, I don't feel the need to be connected to the web 24/7, etc. Just because something is outdated, it doesn't necessarily mean it doesn't work any more.


Yup. Consumerism, greed, instant gratification, and keeping up with the neighbours.
 

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Discussion Starter · #5 ·
Everything you say makes total sense to me. What I wonder is, How much of the problem comes from this kind of spending? (That is, is it the majority of household debt, or a small part, or what?) And what would happen to our economy if we all really were more frugal? As I said above, *70%* of GDP is consumer spending.

I remember years ago visiting SU's grandma, who was about 98 at the time (she died just short of her 100th birthday). We were talking about the economy, and we said that we tried to consume as little as possible. She fixed us with a frown and said, "Well, why, you need to buy *durable goods*! It's the engine of the economy, you know!" We had such a good laugh about that, because she was just repeating the commonsense economic advice of her time--just that her time was the postwar boom years, and she didn't realize that most durable goods aren't made in the USA anymore. But it seems that we're still trying to run an economy based on people buying lots of things--and consumption can't increase forever, right?
 

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Consumpton is helped along by people who buy "crap" that needs to be replaced, instead of saving a bit & buying quality. There is a strange "oh, just buy this *for now* and we'll get a better one later" attitude these days. What happened to saving to buy something of quality that may never ghave to be replaced, or can be repaired? Don't get me started on that, I might launch into my rant about how hard it is to find solid wood "quality" funiture anymore.
 

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Discussion Starter · #7 ·
Don't get me started on that, I might launch into my rant about how hard it is to find solid wood "quality" funiture anymore.
We have one piece of furniture I really value--our dining room table, which is Amish made. It cost a lot more than our other furniture, but it's the only thing I'm confident will last until the day I die. It was worth every penny we paid.
 

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I don't know any of the answers, but it seems to me that buying things you can't afford only gets folks in trouble! I know it helps the credit companies and the stores and a whole lot of people, but when those same folks go bankrupt because they can no longer make the mininum payments on the credit that they could not afford in the first place, who does that help?? When they buy houses and cars they can't afford, in the long run who does it help? Unfortunately I think we found out the answer to that last question- it helps nobody!
 

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It's affluenza. In the NYC exurbs it has been virulent.

I live in a mostly lower middle class town - not a whole lot of affluenza here - but a lot of affluenza envy. We wish we had the Mercedes SUV and the McMansion, but we will settle for a 50" flat screen.

We have more affluent towns on 3 sides and I know that many of those folks are thoroughly infected with affluenza. Now there are many, many people in those towns with their houses on the market who have been living at the limit of or beyond their means for years.
 
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