The Center for American Progress put on a conference today on debt. Terrific people, terrific presentations. Over the next couple of days, I’ll write about a couple of them. But I want to start with the most amazing part: a new survey that should turn the head of every politician in America.
The survey has a lot of gold nuggets to talk about, but I’ll cut to the chase: The data show that Americans see debt as a middle class problem as their problem. By a wide margin, they are personally more worried about debt than they are about a terrorist attack. That’s right: Debt, not terrorism, is keeping people awake at night.
First, the debt problem in this country is recognized across almost every boundary in American politics Republican, Democrat, Independent, men, women, blacks, whites, low income, middle income, high income, low education, high education. There were small differences, but a staggering 82% of Americans say the debt problem is somewhat serious or very serious and 85% say it has gotten worse in the past five years.
People don’t want a free ride. They are quick to place blame on irresponsible spenders and to recognize the role of personal responsibility. But they also understand that even those who are doing their best are facing a game in which the rules are stacked against them.
Different debts worry different people. Older women and folks who didn’t go to college are most worried about medical debt, and younger people are deeply worried about student loans. Seniors are worrying most about credit cards. But the key is that nearly everyone is worried, and they think things are getting worse.
So there it is. If any politician in America thinks no one cares about these middle class economic issues, read the numbers. When the right leader steps up to talk about this problem in a way that shows some real understanding, people are ready to listen.
OK. I’m going to be near the top of the comments here so I’m hoping people will accept the explanation below as fact derived from courses I took at The Wharton School (yes, where Trump went) and how debt and interest rates really work.
When someone takes on a debt, they can use that to finance a long-term purchase such as a house or car, for which they don’t have cash to complete the transaction, or as a convenience for a shorter-term purchase such as clothing or gifts for the holidays. Both are reasonable actions based on the good faith promises to repay the debt to the lender the full amount, plus any interest the borrower has agreed to pay to the lender under contract. This is true of an individual, corporation or government.
The interest rate the person agrees to pay is the result of competitive commerce between the pool of lenders – those with excess funds – and borrowers – those in need of funds. In general, the less confidence a lender has in the borrowers ability to repay, the shorter the term of the loan, the collateralization of the loan (that is, the assets the borrower pledges to use to repay the loan amount and interest), and the market power balance between the lender and borrower determines the interest rate the borrower will agree to pay.
Hence, the interest rate is composed of FOUR parts:
Taken together, these four components produce the nominal interest rate that banks and credit cards quote to borrowers.
When inflation is low and steady, inflationary risk is also low. Default risk depends on a lot of factors, but it’s the reason that when wealthy people borrow they get preferred rates. When the government in all its forms is borrowing lots of money, that raises the real interest rate – giving people with extra money even more benefit for making the loan – and anyone else competing with governments for that money pays more.
The result of huge national and other public debt is that the rich get richer and the poor get poorer with every mortgage, car, credit card and other private debt that happens. So called “individual responsibility” can’t do anything about the real interest rate, which is what has perpetuated the wealth gap.