Tuesday, October 30, 2007

Maxed Out!?

Credit card debt and personal bankruptcies are at an all time high. One of the better books that I have read this year is about the serious issue of consumer debt in the United States. The book is entitled Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders by James D. Scurlock.

The book has a companion movie which is also for sale on DVD, and it may be available at your local video store. Click here to see some clips from Maxed Out: The Movie on YouTube.

Isn’t it common sense that if you want to avoid be “maxed out” you shouldn’t take on debt to the max in the first place? The way to avoid drowning in debt is simple: live within your means or even better below your means. This hilarious old Saturday Night Live routine gives the secret to financial success: “Don’t buy stuff you can’t afford.” A lot of American consumers don’t seem to get these simple truths.

I hope that you have noticed in your reading of Chapter 7 this week that consumer spending constitutes seventy percent of GDP in the United States. And American consumers are heavily dependent on debt to finance their spending. Consumers who carry credit card balances from month to month are not living within their means. Many folks have treated their home as a private ATM taking out cash to pay off credit cards. The housing ATM has closed down but American consumers are still buying stuff that they can’t afford, and credit card debt is soaring.

The subject of consumer debt and its importance to the macroeconomy would make for an interesting and relevant Discussion Board Post. Dr. Robert Manning, an economics professor at the Rochester Institute of Technology, has an excellent web site on consumer credit. You may also want to check out the Generation Debt website, especially the blog.

Extra Credit: Where does the household saving rate (expressed as a percentage) out of disposable income currently stand in the United States? Explain your answer and cite your source. If you are the first student to send me an e-mail at kwoodward@saddleback.edu with the answer, you will be rewarded with two extra credit Discussion Board points. Only two points extra credit per student can be earned in any given week from the blog questions.

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