Dan G. wrote on 03/11/09 11:31 AM

Fantastic! Keep up the good work.

Steve N. wrote on 03/11/09 1:27 PM

That "household debt vs. gdp" graph has to be one of the scariest charts ever. (The "Nightmare on Elm St" of graphs?) And other than NPR, that whole aspect of the causes of "our economic unpleasantness" hasn't gotten a lot of exposure.

Ken K wrote on 03/12/09 2:55 PM

This situation wouldn't be so ugly if the owners of public debt were American citizens, but as it’s become increasingly so, more and more of US debt is being owned by foreign governments –some which even uphold values contrary to American beliefs. This doesn’t bode well for our future, not only because of political instability issues if and when such nations choose to call US debt, but also the siphoning of American wealth through the persistent flow of interest payments that enter foreign wallets. It is sad to think that the primary reason why foreigners are allowed to posses our debt is because we've reached a saturation point where the American people cannot purchase governments debt anymore because most of us, from what I understand, live from paycheck to paycheck and have no savings. No savings = no investing, including no government bond purchases.

Though it is appalling to see the U.S. shoulder so much public debt, maybe it is not so surprising when one really sits down and thinks about the fundamental roots of this issue…

I refuse to believe that people do not live within their means (and in effect save and invest as opposed to gain debt) simply because they are ignorant of financial theories.

Any person that can count with his toes and fingers is aware that owing too much money is not a good thing, and that having a lot of savings is a good thing. And as such, though I agree that the root of the issue is about us and not just greedy bankers, and also that the current educational system largely fails to educate students about basic financial concepts, I would have to think twice before saying that simply educating people about finances will drastically improve the typical American’s approach to his personal finances. The best case for this would be…well, just look at all the bankers in Wall Street: they were supposedly the most financially educated group of all people but we all know where that took many of them and how much they contributed to this economic mess...

Perhaps the root lies in the certain deteriorating virtues of the American people: particularly moderation (living within one's means), delayed gratification (long-term focus), and self-discipline (the ability to simply say no to our impulse to spend and consume things).

I hope I'm wrong, but if this were true, I'm afraid no amount of financial education can cure it.

Conor F wrote on 03/13/09 4:06 PM

I agree with the point of teaching financial literacy classes to school children. Simple conceptual lessons on the value of saving would go a long way.

Tom Wong wrote on 03/14/09 3:08 PM

Paul,

Great Comments. Now that the problem is identified, how does one propose getting out of the present situation? The current administration is attempting to artificially stimulation the economy but as many have said this is merely a sugar rush and will create debt for many years (generations?)

Our financial markets are tied internationally and our recovery cannot occur unless we make changes together. These changes, as you noted, will include our changes lifestyle and debt management.

Thank you for your blogs. I enjoy reading them from time to time.

Tom Wong (former O&S)

Ash Pathi wrote on 03/23/09 9:40 AM

Moderation was a foreign word for Americans. Too much of one thing is never a good thing, especially when you're dealing with debt. For years, people were living beyond their means simply because they could easily leverage purchases. As Paul said, prudent borrowing and unmanageable debt appears suddenly and catastrophically. Catastrophe hit when Americans inflated their stated incomes on home loans, allowing millions of these "prudent homebuyers" to afford homes well beyond their resources. This thoughtless, irresponsible financial thinking led to homeowners owing more on their homes then the homes were actual worth. This type of lending was proliferated by Wall Streets ability to securitize these loans and make an extra buck. We all joined the bandwagon when this process was profitable, and now we all must stay on while it goes through this wreck.

We can regard the current state of the economy as retribution for the years of reckless lending, both on the lenders and borrowers side. At times, it is hard for me to fully sympathize with homeowners who are on the verge of foreclosure, because in the end it was their signature agreeing to those loan terms. We regard Wall Street as the "fat cats" who's greed got us in this mess. I agree indeed with this statement, but not fully.

In the high times, we lived in a fantasy world where values of goods and assets were going up, and would always go up without incident. We were drunk off these false pretenses, naive that something this good would come to an end. Boy we were wrong.

A recession can be seen as a time to trim the excess fat and find opportunities for new growth. We as taxpayers are already partaking in the opportunities as private investors, loaning out billions of dollars to the sordid likes of AIG and other corporations. Before we loan anymore money, we should put a disclaimer designed from Franklin's quote, "Think what you do when you run into debt; you give to another power over your liberty."

Scott Sherwood wrote on 03/23/09 4:01 PM

Thomas Jefferson (speaking of founding fathers) explained, "I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them."

What role does the government play in reinforcing our conception of debt and setting an example for responsible spending?

When we get a paycheck, the federal government takes out some money. Then the state takes some more out. Then State Disability Tax is taken out. Then Medicare. Then Social Security.

Then we invest some money, sell it for a profit and pay capital gains tax. We pay this on stocks, bonds, our homes, and just about anything else we can make money on.

Then after paying taxes our whole lives, we die. Then the government takes about 50%.

Even after all of these taxes, the government still has over $11 trillion in debt (excluding the trillions in unfunded liabilities...).

Perhaps it is not that Americans do not save enough. Perhaps, the government taxes too much - increasing Americans' tax burden every year to pay for increasingly inefficient and ineffective government bureaucracies, a vast military presence in over 150 countries around the world, foreign aid to some nations that stirs terrorism in others, and costly wars. This is where our nation's savings go - into the hands of our leaders - just so, as Thomas Jefferson warns, the government can take care of us.

Just think how rich we'd be if they would let us take care of ourselves!

Taylor S. wrote on 03/24/09 9:26 PM

The thing that worries me is all the debt the country itself has accrued and all we are doing is just collecting more of it. We have billions if not trillions to China- When will this end? Americans can dig themselves out of debt, but can our country? How long will it take?

Neda Farzan wrote on 03/25/09 8:35 AM

The points you make are all valid, but there is one underlying problem that is virtually impossible to cure--greed. Schools can teach financial responsibility and institutions can regulate lending, but nothing can get in the way of human nature, and let's face it, there are a lot of greedy people. How do we solve that?

Also, it seems like we're suffering from a tragedy of the commons. In an economy where debt has little value, but considerable gains, everybody took on more debt. Everybody had a personal gain and everybody helped create a problem that is now being shared by the commons, such as the current state of our economy. We have to find a way to regulate this and assign financial responsibility and rights early on, thereby making people responsible and aware of their financial decisions from the beginning. How can we make this happen?

Alexandru C. Balta wrote on 04/01/09 6:06 AM

A potential cure for human nature's inclination toward greed is a recognition and appreciation of life. How is that possible? Value creation and joy should be the foundations, not "happiness."
In terms of financials, the solutions mentioned are long-term investments applicable to any standard of life. As an example, walking alongside the shores of Ventura Beach I stopped and talked with some homeless. Even though the community disregards the unfortunate, the disheveled are united. Furthermore, one of them was well versed in linguistics and was forced on the streets due to his homes being foreclosed and the death of his wife. Will all that in his life, he found joy in the simplicity of life.
Thus, I constantly implore the importance of joy and value creation. Happiness is sought by those who fear failure. Find joy, and "happiness" will follow.