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Forgive Us Our Trespasses?
The Rise of Consumer Debt in Modern America

(Released February 2009)

  by Matthew Ruben  


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News Articles

  1. Davos: World Economic Crisis: Global Search for Growth Will Turn to U.S. --- Government Outlays May Curb Downturn, but . . .
    Perry, Joellen; Hong, Shen
    Wall Street Journal 01-28-2009

    DAVOS, Switzerland -- Two questions preoccupy the world's economic elite here: Will the government money pledged to prop up national economies be enough to keep the world from going into a prolonged slide? And where will the growth come from, once bottom is touched?

    At the start of the five-day World Economic Forum, the broad outlines of answers are emerging. Economists say the fiscal-stimulus packages from Washington to Beijing will cushion the downturn but fall short of preventing a world-wide recession. And global growth, when it comes, will still be powered in part by U.S. consumers -- though they'll spend far less than they did in the debt-fueled years of the recent boom.

    Chinese Premier Wen Jiabao, the first Chinese leader to attend a Davos meeting in the event's 38-year history, will likely seek to lower expectations that China can extract the world from the economic crisis. Despite its rise as a global production hub, China -- like emerging Asian economies such as India -- is too small, too poor, and too export-dependent to provide much of a buffer for the global economy in the next few years.

    Asia's inability to compensate for the drop in U.S. consumption means any global recovery will be slow in coming and marked by lower growth rates than the world has seen in recent years.

    "We thought we could keep growing [globally] at rates of 4% and 5% a year, but that's unsustainable," says Nouriel Roubini, a Davos regular who heads RGE Monitor, a financial and economic forecasting service in New York. Mr. Roubini's best-case scenario: After a recession this year, the world returns to more moderate global growth rates around 3.5% by 2011.

    Governments around the world have pledged trillions of dollars -- a precise tally is hard to come by -- to blunt the impact of the financial crisis. U.S. Democrats hope to pass President Barack Obama's $825 billion economic-stimulus bill -- a package of tax and spending measures over two years amounting to 3% of annual U.S. gross domestic product per year -- by mid-February. . . .

    Copyright 2009 Dow Jones & Company, Inc.

  2. Credit Solutions; Credit Solutions Crosses $800 Million Mark for Total Consumer Debt Settled
    Science Letter 01-27-2009

    2009 JAN 27 - ( -- Credit Solutions set a new industry record this month, settling $800 million in unsecured consumer debt over the past six years, $25.7 million of that solely during December 2008 (see also Credit Solutions).

    Americans currently owe some $2.5 trillion in unsecured debt1, and in a recent Pew Research Center poll, 61% judged their personal financial situation as fair or poor.2 "There's a reason we're the market leader," says Credit Solutions CEO Doug Van Arsdale. "The days of debt consolidation loans and high-interest lines of credit are coming to an end. Customers are no longer looking to just move their debt; they're looking for real help in eliminating it."

    Since its 2003 inception, Credit Solutions has helped 200,000 clients nationwide manage $1.75 billion in consumer debt, settling more than $350 million in the past 12 months alone due to ongoing efforts to make the settlement process as stress-free as possible for clients.

    In 2008, Credit Solutions introduced a number of new technologies designed to streamline the debt settlement process. . . .

    Copyright 2009, Science Letter via

  3. Changing Attitudes on Debt Makes Planning a Must ; Financial literacy skills are more important than ever these days, as Americans negotiate debt at every turn. Consumers may be more comfortable with debt, says a new study, but can that be healthy?
    Karen Krebsbach
    USBanker 02-01-2006

    Those who believe that the only certainties in life are death and taxes can now add a third to the list: personal debt. A new study commissioned by LendingTree, an online lending exchange, finds that living with increasingly higher levels of debt has become an accepted state of affairs in America, an inevitable and permanent feature of daily life. And since the social stigma of high levels of debt has largely evaporated, many more consumers are willing to go into debt or take on additional levels, depending upon what stage of life they are in. For example, families are saving less for college and relying more heavily on student loans, which contributes to higher debt levels among graduates, who are entering young adulthood with more debt-both student and consumer-than previous generations. The average student graduates from college with $22,500 in student loans and credit-card debt, including $19,500 in loans, according to Cambridge Credit Counseling Corp., a debt-management firm. Moreover, 65 percent of college students carry credit-card debt, with more than 50 percent charging their cards to the limit some or most of the time, according to a recent survey funded by Oppenheimer Funds and conducted by Smith College.

    In addition, the LendingTree study found that home ownership is a more important piece of the overall financial equation and that many consumers don't do long-term financial planning or even have a personal budget. Another interesting finding: Many people attribute their willingness to go into debt-or to take on additional levels of debt-directly to a dramatic increase in spending on children and grandchildren.

    The LendingTree study, written by University of Rochester Institute of Technology economist and professor of finance Robert Manning, the author of Credit Card Nation, examines debt among college students, young singles, young families, mature families, empty nesters and seniors. "The findings are extraordinary," says Manning. "People who live on debt have to learn to reduce their standard of living. And people have to learn to become savvy investors even when they are in debt. ...Consumers' knowledge base has lagged the information out there. . . .

    Copyright 2006 Thomson Media

  4. No Margin of Safety
    Laing, Jonathan R
    Barron's 10-11-2004

    Sub-prime mortgage lender New Century Financial has been on an undeniable tear of late. Its stock has soared more than tenfold since the beginning of 2001, rising from 5 to a recent trading price of around 60, riding the crest of levitating home prices and voracious loan demand from credit-impaired borrowers avid to suck equity out of their homes.

    Investor excitement over New Century remains at a fever pitch despite its spectacular price run. Last month its shareholders voted to transform New Century into a real-estate-investment trust called New Century REIT, which can escape corporate taxes on income from qualified real-estate assets as long as it pays out 90% or more of its earnings in dividends to its shareholders. Then just a week later, New Century followed up with a sizzling stock offering, raising some $870 million in new equity. The fresh funds will be deployed in short order to more than double the company's portfolio of mostly mortgage-related assets from its current level of around $9.1 billion. . . .

    Copyright Dow Jones & Company Inc.

News Articles taken from ProQuest's eLibrary.

Historical Newspapers

  1. Home Is Security -- Do You Want Big Mortgage On It?
    The Hartford Courant (1923-1984). Hartford, Conn.: Sep 19, 1965. pg. 18D, 1 pgs

    Abstract (Summary)
    A whole new philosophy is now arising as to the meaning of mortgage debt. For a long time the ideal was a debt-free home as soon as possible. Now a new school is arising which stresses that paying off the mortgage is unimportant as long. . .

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  2. Credit-Card Debt Isn't the Problem
    By Robert J. Samuelson
    The Washington Post Washington, D.C.: Apr 8, 1980. p. D7 (2 pages)

    Abstract (Summary)
    The current government crusade against consumer credit is one of those deceptive political and media events in which up is down, backwards is forwards and the obscure, complicated truth gets lost in the press releases. Contradictions abound. Sensible economic changes are politically impractical, but the political necessity to "do something" -- in the name of fighting inflation -- remains strong.

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  3. U.S. Home Mortgage Debt Tripled During '70s
    The Hartford Courant (1923-1984). Hartford, Conn.: Jan 23, 1984. pg. C8, 1 pgs

    Abstract (Summary)
    WASHINGTON -- Americans owed nearly $1 trillion on their homes in 1981, more than triple what their mortgage debt was a decade earlier, the Census Bureau has reported.

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  4. Loan Morass; Losses on Credit Cards, Other Consumer Debt Are Climbing Rapidly Banks and S&Ls Mail Plastic To People Who Spend, Can't Pay and Go Broke 'Too Much of a Good Thing' Loan Morass: Losses Are Soaring On Credit Cards and Other Debt
    Wall Street Journal. New York, N.Y.: Dec 2, 1985. pg. 1, 2 pgs

    Abstract (Summary)
    About 18 months ago, Home Federal Savings & Loan Association of San Diego began an ambitious expansion of its creditcard operation to cash in on the fat fees and lucrative rates that that business can bring. "We wanted more of it," says William Mayer, Home Federal's senior vice president for accounting. "We thought it would be a stroll in the park.

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Taken from ProQuest's Historical Newspapers.


  1. An investigation of credit card holding, borrowing, and payoff

    Jiang, Saihong, Ph.D., The Ohio State University, 2007, 112 pages

    Abstract (Summary)
    The widespread use of credit cards has challenged the traditional lifecycle hypothesis and introduced new uncertainties into U.S. financial markets. Based on a set of new survey data, this dissertation empirically investigates two critical issues in the credit card market: (1) the lifecycle borrowing and payoff profiles of credit card revolvers adjusting for cohort effects, (2) the underlying determinants of the consumer's choices regarding holding, borrowing, and payment on credit cards.

    Due to data limitations, most previous studies analyzed consumer debt in a static or comparative static context. Using a synthetic cohort approach, this research tracks the changing behavior of credit card borrowing and payoff in a lifecycle framework for different birth cohorts observed in a time series of cross sections. A two-way fixed effect, pseudo-panel data model is proposed to disentangle cohort effects from age and time effects and to estimate the cohort-adjusted profiles. The fitted profiles show very different patterns compared with the unadjusted cross-sectional profiles implied by the simple lifecycle hypothesis. The results suggest that younger American consumers are borrowing more heavily and repaying at lower rates on credit cards than older generations. If the current borrowing and repayment habits persist, a substantial buildup of credit card debt at a later period in life may jeopardize the financial well-being of the elderly and cause instability in the credit card market.

    For effective policy-making and regulation in consumer finance, it is necessary to understand the underlying determinants of consumer behavior in credit card holding, borrowing and payoff. This study examines a variety of factors, including credit related variables, socioeconomic variables, and expectations variables, in determining household behavior related to credit card use. Specifically, the analysis focuses on three aspects of the consumer's choices: (1) credit card ownership, i.e. whether or not to hold a credit card, (2) credit card borrowing, i.e. whether or not to borrow on a credit card, and (3) determinants of the levels of credit card debt and payoff rates. Analyzing credit card debt and payoff rates in the context of ownership choice and borrowing choice helps to provide an understanding of how consumers maximize utility by switching between different roles, and allows us to look at consumer behavior in the credit card market from a broader perspective.

  2. Debtor nation: How consumer credit built postwar America

    Hyman, Louis Roland, Ph.D., Harvard University, 2007, 467 pages

    Abstract (Summary)
    Americans are now more in debt than ever before in history. While many debtors blame themselves for their indebtedness, their ability to choose how much debt to incur has already been institutionally over-determined--debt is experienced personally, but it operates structurally. Americans are in debt today because their economy depends on their indebtedness for its very profitability. Since the 1920s, American manufacturers have relied ever-increasingly on consumer debt to absorb the tremendous productivity increases of mass production. Indeed, consumer credit made mass consumption possible. Government programs and business policies that encouraged Americans to take on debt made sense to borrowers in the midst of a growth economy because money needed today could be paid back in a more prosperous tomorrow. This debt economy, though not accidental, did not spring forth one day fait accompli. The institutions which lent, governed and enforced the repayment of debt coalesced haphazardly, responding to business pressures and government policies in addition to consumer demands. Manufacturers, bankers, retailers, collectors, regulators, and borrowers all had different and often contradictory perspectives on what form consumer credit ought to take; their conflicts over the debt relation raged at the statehouse as much as the register. Consumer debt's explosion was not the natural expression of the market nor was it the hegemonic will of a master planner, but was instead the historically contingent creation of financial institutions, the state, and the American people all struggling to make ends meet within the volatile circumstances of an industrial economy becoming a post-industrial economy.

    Historians and social critics have neglected the rise of the institutions, policies and practices which constituted this debt-driven economy, concerning themselves more with pining for the postwar's affluence and lamenting its demise. Debtor Nation shows how debt was at the core of both the postwar's affluence and its decline, demanding a reconsideration of that period's nostalgic legacy. While growth persisted, as it did in the postwar period until the 1970s, consumers experienced few deleterious effects from their borrowing. As postwar growth transitioned into stagflation and greater income inequality, however, cracks appeared in the foundation of the economy. The shift from a manufacturing to a service economy, along with the concomitant loss of high-paying industrial jobs, derailed Americans' expectations of the future. Consumer debt skyrocketed, not because consumers began to borrow, but because they continued to borrow as they and their parents had done since World War II. The infrastructure of the debt economy, created and predicated on prosperity, whose cultural logic and economic stability was ill-suited for the end of growth, remained long after that prosperity ended.

  3. An essay on the economics of consumer debt

    Li, Ihsuan, Ph.D., Clemson University, 2004, 109 pages

    Abstract (Summary)
    In the last two decades, data on U.S. household portfolio on debt and asset holdings showed a puzzling mix of high interest rate bankcard debt and liquid assets. In this dissertation, I examine the basic implication of the portfolio features commonly attributed to growing consumer irrationality. I posit this appearance is a manifestation of precautionary savings, substitution to cheaper home equity loans, and technical change in the electronic processing of payments.

    This dissertation has two arguments. First, all households behave as predicted by the precautionary savings consumption model where prudent households and liquidity-constrained households hold a small savings as precautionary or buffer stock to insure against negative shocks, a fact well documented by macroeconomic studies. Second, technological innovation on credit scoring and processing has altered the accessibility to the credit market to previously liquidity-constrained households, increasing the proportion of households who become bankcard debtors, thus augmenting the effect of bankcard debt substitution to cheaper home equity loans. In contrast to behavioral explanations focusing on issues such as mental accounting and self-control, or bankruptcy or default models, this dissertation proposes an empirical model based on classical utility and preferences to provide evidence in support of household holdings of savings and bankcard debt that might have originated the irrationality implication found other household portfolio studies.

    Using maximum likelihood Heckman sample selection regression, I test the implications of precautionary savings and the liquidity constraint using the traditional approach with constant relative risk aversion and preferences. Four years of data from the Survey of Consumer Finance are used to test the empirical model, and households are censored according to whether they hold bankcard debt. Examination of data weakly supports the technological shift argument; however, regression results provide strong evidence in support of liquidity constrained and unconstrained households behavior as predicted by the empirical model based on risk averse and precautionary savings models under negative shock.

For Full Text Documents Go to ProQuest's Dissertations & Theses Database.