Monday, March 30, 2009

Stagnant Wages Led to the Use of Credit

It really infuriates the hell out of me when people try to put all of the blame on the "irresponsible consumer who went in over his head." There's plenty of blame to go around, I assure you. Inflation-adjusted American wages have remained stagnant since 1975 but the cost of living has done nothing but increase. This contributes to the use of credit. This is why we have $2.5 trillion in consumer debt (excluding the $12 trillion in mortgage debt).

American businesses have been financing the true costs of low wages with consumer credit. As long as there's distance between debt and income, there's no problem with the system. The pain of the difference between debt and income was numbed-out with credit. If there's no pain, then there's no problem.

What caused this downward pressure on wages? The outsourcing of the good-paying manufacturing jobs certainly contributed a good deal to it. The jobs that remained after such outsourcing were either low-paying service sector jobs or professional jobs that you had to go to college for (which meant student loans).

I'm one to believe that we are not in a recession. We are in a standard of living correction. We have lived beyond our means for way too long and now it's time to live like the rest of the world.

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