Spread this message with Digg, Del.icio.us, Reddit, or Stumbleupon, and subscribe to the RSS Feed to track articles

Faking It: America's Standard-of-Living Bubble Burst Looming

Published 08/20/08 Alexia Cameron - Print Article
E-mail - editor@economyincisis.org

In America, it seems perception is everything. Amid our economic turmoil, it may seem egregious to say that our standard-of-living has continued to rise, but that is exactly what has been happening. Through pretending and borrowing, we have continued to live in a land of make-believe where we can always afford to live a little better, despite any real basis for this assumption. Due to our reprehensible spending patterns, Americans are encroaching the bursting of the most worrisome bubble of all: the standard-of-living bubble, according to CNNMoney.com.

For the past several years, the average inflation-adjusted total pay of American workers hasn’t been increasing, so there hasn’t been any foundation on which to build our living standard. However, we have continued to save less, borrow more and spend, spend, spend. Credit card debt is growing at exponential rates. With the bursting of the real estate bubble, borrowing from home equity was relinquished and people resorted to borrowing from their credit cards.

Americans began relying on their credit cards as a source of income and living under the false assumption that this extra money could increase their standard of living. However, credit card debt has continued to grow faster than the economy- more than 8 percent in last year’s third and fourth quarters.

Banks are finally starting to bear the brunt end of the stick as they can no longer offload as much debt as they have in the past. Credit card debt, like mortgage debt, gets bundled, securitized, and sold off by banks. Citigroup, one of America’s largest lenders, just reported that it lost $176 million in the second quarter through securitizing debt. When buyers of those securities notice an increase in delinquency rates and rising interest rates, they decide that the debt is worth less than Citigroup thought.

While home prices probably won’t be rising anytime soon, there isn’t much else to borrow against. The standard-of-living bubble may have to deflate. Americans may soon have to learn to save their money and spend what they have. Our standard of living has to be earned and can no longer be a delusional thought. We need to develop more valuable work that cannot be outsourced to re-up America’s economy and give us a solid foundation on which to increase our standard-of-living. Maybe then, we can finally evacuate imagination land.

Source CNNMoney.com:

Since credit card debt has been growing much faster than the economy - more than 8% in last year's third and fourth quarters and over 7% in May (the most recent month reported)- people are apparently using it as a substitute for income.

...

But a big crunch is coming - and here's why. Credit card debt, like mortgage debt, gets bundled, securitized, and sold off by banks. Citigroup (C, Fortune 500), one of America's largest credit card lenders, just reported that it lost $176 million in the second quarter through securitizing such debt. That happens when the buyers of those securities observe rising delinquency rates and rising interest rates, and decide the debt is worth less than Citi thought. More generally, the amount of credit card debt that is securitized nationwide has plunged by more than half in the past five months because it's getting riskier. That means credit card issuers will be charging customers higher interest rates, and since the banks can't offload as much of the debt as before, they'll have less money to lend to cardholders.

Click Here For Solutions To America's Economic Problems

Front Page Photo by b.franchina - Flickr © Some rights reserved

Click here to contact your Representative in Congress.

Unless the above article is already copyrighted, this article is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License, EIC grants permission to use this article in whole or in part provided attribution is given, preferably in the form of a link back to EconomyInCrisis.org.