What Would Happen if We All Paid Off Our Debt?
This was a fun article from US News & World Report, via Yahoo News. One thing that’s important to note is that, while parts of the economy would decline, other parts would get a slice of the dollars—and it’s not as if the dollars not spend on “immediate consumption” would disappear from the market. The economy would *shift* in its purposes and uses of money. So it’s not necessarily true that “all the consumer spending would just go away” or all those dollars would disappear out of the economy. But the *market* as a whole would shift—and that would be such a good thing.
It’s no secret that consumers are saddled with debt. Combined, in the United States, individuals owe more than $12.6 trillion dollars. Since approximately 24 percent of households are debt free, and there are around 114 million households in the U.S., the average household is saddled with?
Sit down.
Approximately $145,000 in debt!
I’m about to combine averages and medians for simplicity’s sake, but bear with me: According to the Census Bureau, median household income is $51,881 per year. If the average household did nothing but pay down debt, it would take 2.8 years to pay it all off!
Naturally, it’s absurd to expect an entire household’s income to go to debt. Even if 30 percent of the income were dedicated to debt payoff, it would take 9.32 years.
That seems like a long time.
However, let’s think about the ramifications. If we, as a society, buckled down and committed to paying off debt. What would really happen?
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4 comments
I am assuming this includes what is owed for a home? We still owe on our home, but nothing else - we pay cash for cars and hope to get all 5 kids through college without borrowing…
[1] Posted by B. Hunter on 10-15-2012 at 08:11 AM · [top]
The average household US debt is much higher when you add in the responsibility from the deficit spending: $701,426 per family. So the average is closer to $1 million. Time to stop snoozing and wake up.
[2] Posted by iamaworm on 10-15-2012 at 09:05 AM · [top]
Once I read the Yahoo article I had a good laugh. The person who wrote it clearly does not understand the power of expendable cash and economic demand/expansion. I would add that tax and risk policies do not favor an “all cash, all the time” economic model. All of the categories the author opines would go away would simply have new consumers for the products. As Sarah points out, it would be a shift in the economic model.
[3] Posted by iamaworm on 10-15-2012 at 09:38 AM · [top]
From a national perspective, the greatest impact would be an inability to manage the money supply. While tying the money supply to debt is easy to malign, it has the advantage of keeping the money supply (or more precisely the combination of money supply and velocity) tied roughly to the amount of goods and services in the economy. Trying to manage the supply of money (and thus prices) from a centralized authority is never as effective.
Also - not all debt is the same. It isn’t unreasonable to have a $100k mortgage on a home worth twice that amount (particularly at today’s rates). If that same $100k debt is on credit cards and represents prior consumption without significant current value… then it’s a problem.
[4] Posted by Positive Phototaxis on 10-15-2012 at 10:56 AM · [top]
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