American Consumer Culture = Debt Slavery

Posted on October 13, 2013

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The American Nightmare has made Galley Slaves of us once again.

A lot of concern – well founded, in my opinion, centers around the skyrocketing growth of our national debt. To everyone with a solid grounding in economics and history, this is a dark, ominous cloud hanging over America. I’ve noted that our grandchildren will despise us for bequeathing to them a collective burden of taxation and stifled economic growth that  will be theirs from birth. But there’s an equally fearful debt problem that doesn’t attract nearly as much attention, even among conservatives. That’s our consumer spending culture driving the accumulation of personal debt.  How reasonable is it for Americans to be digging a deeper hole for themselves, when the American Dream is being dynamited at its foundations and jobs and income are eroding?

According to a recent analysis by the National Employment Law Project (NELP), the biggest growth in private-sector job creation in the past year occurred in positions in the low-wage retail, administrative, and food service sectors of the economy. While 23% of the jobs lost in the Great Recession that followed the economic meltdown of 2008 were “low-wage” (those paying $9-$13 an hour), 49% of new jobs added in the sluggish “recovery” are in those same low-wage industries. On the other end of the spectrum, 40% of the jobs lost paid high wages ($19-$31 an hour), while a mere 14% of new jobs pay similarly high wages.

We have transitioned, as a society, from past generations, who were wary of living beyond their means, to one in which the ability to use credit in a careless and capricious manner, serves the purpose of banks and corporations for ever increasing profits, while we make indentured servants of ourselves.  Millions of Americans fail to recognize the fearful destruction of the Bermuda Triangle of debt slavery. One corner of the triangle is Madison Avenue.  The advertising industry labors tirelessly in the seduction of the American, with an incessant bombardment of images and sense stimulation designed to neutralize our judgment and common sense, eclipsing need and focusing on desire of acquisition.  It’s been drummed into our heads that our status within our community and circle of friends and acquaintances is predicated on outward displays of consumption.  Judging from the enormous numbers of relatively useless rubbish that we purchase as our manufacturing base continues to erode – the marketers of trash culture are winning and winning big.

The second point of the triangle is the voraciousness of the industrial banking complex.  Consumer credit is today, without question, the most profitable segment of banking.  To understand how that came to be, is to go back, only about half a century.  Up to the 1950’s, easy credit in the form of credit cards, was unknown.  Bank of America invented the credit card industry with a startling maneuver in 1958, when they executed a mass mailing of credit cards to residents in Fresno, California – 60,000 of them, all total.  All of these cards were unsolicited by the recipients. Consumer credit was fledgling at that point and still mostly centered around revolving charge accounts at department and general merchandise stores.  People in that era were conservative with their acquisition of credit, generally limiting its use to large ticket purchases such as automobiles and appliances.  The mainstream of spending  was cash based for the bulk of daily expenditures.

The initial reaction to the inundation of plastic charge cards ranged from suspicion to indignation.  America had still not forgotten the hard won lessons of the Depression and to behave as a spendthrift was equated with profligacy and irresponsibility – there was a social stigma attached to it.  For a variety of factors, the attempt to expand consumer debt was initially unsuccessful and unprofitable, but the banks believed that with a sustained effort, they could win over public morals and ethics.  By 1978, banks had issued over 100 million cards, while at the same time steadily building the retail infrastructure for their use through the development of Visa and Mastercard.

Yet, it wasn’t until the 1980’s that consumer debt really ramped up in profitability.  This was the era when acceptance of debt and the means of banks to capitalize on the demand, converged.  A major factor in this was the strategy of moving the credit card divisions of these national banks out of states like New York, with restrictive usury laws, into states where such laws were non-existent.  One state served this purpose better than any other – South Dakota.  Citibank led the migration and all the rest of the big players followed.  If you ever wondered why your bank card payments go to South Dakota or Delaware – who also acted swiftly to get in the game, this is the reason.  From that point forward, rates were not tethered to legal limitations, but rather to whatever degree of demand for consumer credit could be ginned up.

By the late 80’s, the advertising and banking cartels had won the battle of seducing society into seeing the availability of debt as a blessing rather than a curse.  Between 1980 and 1990, the number of credit cards more than doubled, credit card spending increased more than five-fold and the average household credit card balance rose from $518 to nearly $2,700.  With the cost of money sinking and average balances climbing, profits soared.  From there, the science of lending came into its own, perfecting the mechanics of predatory lending. Banks were intent on not only expanding the consumer debt market, but innovating ways to pressure the borrowers for even more fees now that they had juiced up the demand for their product.  Borrowing rates were ratcheted up and annual fees and late penalties were steadily incorporated.

At this point, Americans had become drug addicts to debt and the banks knew it and maintained heavy influence in Congress to avoid any attempts to interfere with their practices.  They still had a few tricks in their back pocket, to spring on the consumer.  One was the emergence of the credit reporting industry, which had been around for about a century, but banks began comprehending the potential for exploitation against consumers, in the early 1970’s. Credit Reporting Bureaus are not the impartial referee in the credit game that the financial industry promotes them to be.  In reality, Credit Reporting Bureaus (Experian, TransUnion and Equifax) are functionally appendages of the banking industry.  If you scoff at this assertion, consider the fact that there are an estimated 40 million errors on credit reports nationally, according to an 8 year study by the Fair Trade Commission (FTC).

Have you ever stopped to question the order of affairs with regard to the truthfulness and factual accuracy of your credit report?  The bank reports derogatory information to the agency, and it stands as accepted fact.  The bank does not bear the burden of proof to provide evidence of a debt or a late payment and the information is immediately entered into the database.  On the other hand, if you spot a mistake on your report, the process of reporting it and challenging it is extremely onerous and time consuming.  Why is this?  There’s a simple reason – lower credit scores equate to higher cost of borrowing combined with enhanced leverage of the lender,  which translate to higher profits for the banking industry.  It’s really not complicated.  60 Minutes investigators discovered that the credit bureaus outsource their operations to India and South America, so that when you submit a complaint, the error is not actually investigated, simply processed and the bottom line? 

Steve Kroft (60 Minutes Reporter): Did you have the authority to say, “Wait a minute,” after looking at somebody’s file, and say that, you know, “This is a– somebody made a mistake; this person doesn’t owe this money”?

Rodolfo Carrasco (Customer Service Rep at Experian in Santiago, Chile): We didn’t have that power. All they did was read the disputes and reduce them to a two-digit code like “never late” or “not mine.” It was then sent with a two or three-line summary and no documentation back to the bank or department store that furnished the original information. 

Steve Kroft: If there was a difference of opinion between the creditor and the person who was filing the complaint, how was it usually resolved in the– in favor of the creditor?
Enzo Valdivia: Yeah. The creditor was always right.
Rodolfo Carrasco: Mostly, we took for granted the word of the bank. If the bank said, “Hey, this guy owes $100,” so it is. 

Len Bennett (Consumer Attorney): I can say this. Without qualification, the dispute procedures used by the credit reporting agencies uniformly used completely fail to comply with the Fair Credit Reporting Act. Courts have found that. The Federal Trade Commission has found that. It’s not even a close call. Ohio Attorney General Mike DeWine agreed.
Mike DeWine: I think the industry’s a mess. And I think the impact it has on real people is just unconscionable.
Steve Kroft: You think they’re breaking the law?
Mike DeWine: I think they’re breaking the law. There is no doubt in my mind that they are breaking the law.

The incestuous relationship between the financial industry and the CRB’s is so lucrative that they expend even more lobbying money nationally than the largest banks including Wells Fargo and Bank of America – nearly $900 Million just this year.  Let me put it bluntly, if you think they are spending that money in Washington to defend your interests or to derail the interests of their partners in this legalized theft scam, I’d like to show you some beach front property in Arizona.

Another gambit was the trend of lowering the minimum payment percentage from 5% to 2% monthly, on the remaining debt balance.  This was a calculated moral hazard which resulted in larger debt balances sustained for longer terms.  Who does that benefit?  Not you, so much. 

The third corner of the Bermuda Debt Triangle, is the American consumer, who keeps taking the hits and like a battered housewife, unwilling to leave her spouse, remains a captive to the relationship.  The national psychology has been transformed in less than a century, from the virtues of deferred gratification and savings to that of “eat, drink and be merry” and tomorrow will take care of itself.  The manufactured economic crash of 2008, should have been a wake up call.  Certainly it is well known that the job market is precarious, that we’re not in a genuine recovery, that the stock market and real estate ‘rebounds’ are nothing more than re-inflating asset bubbles and that income for the majority of Americans (the 99%) is down and has been trending down for 30 years.  But people cast reason and restraint aside, for the temporary euphoria of ‘toys’, built offshore by our economic competitors. The economic consequences of Obamacare, will be just one more horrifying nail in the coffin to the American fool, whistling past the graveyard.

This is the frightening truth.  Consumer credit eclipsed $3 trillion mark in the second quarter of 2013 and continues on an upward trajectory, according to the most recent numbers from the Federal Reserve.  At $3.04 trillion, the total is up 22 percent over the past three years
Total household debt, according to the Fed’s flow of funds report, is at $13 trillion, nearly back to its pre-crisis level in 2007 and a shade below government debt of $17 trillion.

Incredibly, 43 percent of all American families spend more than they earn each year.  Even while median household income continues to decline (now less than $50,000 a year), median household debt continues to go up.  According to the Federal Reserve, median household debt in America has risen to $75,600.  I’ve only outlined a select few staggering facts about our national personal debt situation.  I recommend you check out Michael Snyder’s excellent outline of the dimensions of the problem, here.

My friends, this is the definition (among others) of insanity.  We now live in an age where the outward signs of material wealth are emblems of our social status and our self image, not our morals, character and ethics.  Christmas will be upon us soon again, and people will repeat this perennial cycle of self-victimization.  Really, as critical of the banks as I am, along with the other apparatus their predatory practices bring to bear – at the end of the day, you are the master of your destiny.  You can remain in bondage or you can engineer your jailbreak. Freedom begins by an active process of adopting new values and taking even the smallest steps to implement them.

Can there be any wonder why voters are attracted to big government, when they themselves exhibit the same behavior as out of control, deficit spending elected officials in Washington?  To warn these people that a day of reckoning is on the horizon, is to call into question their own irresponsibility and foolishness.  Big Screen TV’s and imported ephemera, soon to be seen as cast asides at neighborhood moving sales, attract more attention and speak with a more arresting volume than the persistent voice of wisdom.  That’s the unfortunate truth.

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