Monday, Oct 15, 2018
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Let's take tough lessons on high debt to heart


OK, class, we're back in school. What are we going to learn in the next nine months? Maybe more important, what have we learned in the last year?

For starters, we learned that crude-oil and gasoline prices can double in just a few months, that what goes up usually comes down, and that banks can fail.

Many American consumers learned that perhaps they shouldn't be driving big sport utility vehicles, maybe they shouldn't have stretched their budgets to buy large houses in outer-urbia, and home-equity loans can sometimes be tickets to disaster.

So, we did learn some things. But did we learn any lessons that will help us prevent financial debacles?

We have a long history of forgetting our lessons as soon as crises pass.

For example, we've been through crude-oil shortages and price spikes before, notably in the late 1970s and early 1980s. But did car buyers switch to smaller autos? Maybe some did, but not for long. By the 1990s there was a binge of SUV buying, aided, no doubt, by gasoline prices dipping below $1 a gallon at times.

In the early 1980s, Congress threw $15 billion into experimental plants to produce alternative fuels from such raw materials as coal, shale, and tar sands. But when the energy crisis abated and gasoline prices fell, Congress pulled the plug on alternative energy.

If oil now falls below $100 a barrel and gasoline retreats from $4 a gallon to the $2 range, will Americans forget all about solar energy, hybrid cars, and power-generating windmills?

Right now, we are paying the price for the latest bubble, the subprime-lending mess that produced bank failures and a credit crunch, on top of sliding home prices.

Nine banks have failed so far this year, compared with three last year, according to the Federal Deposit Insurance Corp. The agency said last week it may add 230 employees to deal with bank failures.

The future of such giants as Fannie Mae and Freddie Mac are in question, too.

It's clear that millions of consumers paid too much for their homes, refinanced too much, and took out predatory loans from unscrupulous lenders.

Because of the credit crunch, rising unemployment, and loss of wealth - not only in housing but also in the stock market - millions of Americans are forced to live within their means, or at least try to.

As a group, we owe way too much money. The Federal Reserve reported last month that consumer credit in the United States, not counting mortgages, totals nearly $2.6 trillion. That averages out to nearly $8,500 per person or more than $22,000 per household, and it's up 24 percent in the last five years.

Credit card debt alone totals $968 billion - $3,175 a person, or more than $8,300 for the average household. That's up 26 percent since 2003.

All right, class, are we going to be honor student or simply graduates of the school of hard knocks? Even worse, are we going to have to take remedial courses for dunces?

Let's take better notes this time. Understood?

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