Editor's Note: This article was written by James Quinn, a senior director of strategic planning for a major university. James has held high-level financial positions with a retailer, home builder and a university in his 22-year career.


For the last three decades, you didn’t really need anything in your pocket. You could just whip out one of your 10 credit cards and act like a hotshot. Cash was for suckers.

Credit cards are so easy to use. You just pull it out, buy whatever you desire, and make a minimum payment every month until infinity. We’ve become a minimum-payment nation; if you can handle the minimum payment, it’s yours.

In 2006, the Census Bureau determined that there were nearly 1.5 billion credit cards in use in the US. A stack of those credit cards would reach more than 70 miles into space, and be almost as tall as 13 Mount Everests.

Consumer credit debt has risen to $2.5 trillion from $400 billion in 1980. Consumers have an average of 5.4 credit cards with $973 billion outstanding.

At the end of 2008, households that used a credit card had an average outstanding debt of $10,679. Excluding mortgages, the average American with a credit file is responsible for $16,635 in debt, according to Experian.

The most fascinating fact is that the top 10 US credit card issuers held an 87.55% market share of the outstanding $973 billion linked to general-purpose cards in 2008. A number of these are coincidentally the same ones that brought down the financial system -- Bank of America (BAC), Citigroup (C), JP Morgan Chase (JPM), Wells Fargo (WFC), Capital One (COF), HSBC (HBC), American Express (AXP), Discover (DFS), US Bank (USB).

Consumer Credit Debt

                                   
Source: Federal Reserve
Click to enlarge

It’s taken Americans three decades of overspending and under-saving to get into this pickle. As you may notice, consumer credit debt is $2.5 trillion and has barely budged downward.

The pundits and economists predicting a strong economic recovery are blind to the truths of consumer debt. With actual unemployment exceeding 16.8%, 9 million people forced to work part-time, the work week at all-time lows, and banks shutting down credit lines, consumers will be reducing or defaulting on their debt for years.

Also important to note is that 70% of the economy is dependent on consumer spending, which means there’s absolutely no chance of a strong recovery.

As a percentage of disposable income, household debt-service payments reached a peak of 14.2% in 2007 and have plunged all the way to 13.5% -- disposable income is plummeting as people without jobs don’t have anything to dispose of.

A paradigm shift is occurring, but the mainstream media, mainstream economists, and politicians running this country don’t seem to understand the implications.

Three decades of debt accumulation is not resolved in two years. It’ll take decades of reduced spending, paying down debt, and writing off debt.

The Federal Reserve, banks, and politicians are frantically attempting to make consumers borrow and spend with the Troubled Asset Relief Program (TARP), Term Asset-Backed Securities Loan Facility (TALF), Cash for Clunkers, and numerous other debt-increasing gimmicks. The consumer is tapped out.

The median 401k balance in the US is $26,000. Boomers are realizing they’re 60 years old and have $50,000 of retirement savings and $30,000 of credit card debt. They’re learning the brutal lesson of needs versus wants.

The implications are disastrous for those dependent on a consumer-spending society (i.e. retailers, restaurants, hotels, car makers, home builders).



In the US, 75% of households have credit cards, and of those, 30% pay off their balances each month. These are the people who have chosen to live within their means and appreciate the notion of delayed gratification.

Buy things when you can afford them. Live a life of thrift and frugality. Save for your family’s future. Live within the parameters of a budget -- what a concept.

The TARP-accepting banks that control 87% of the credit card market are recording losses on an unprecedented scale. But no need to worry, the middle class taxpayers come to the rescue again.

Orwell must be rolling in his grave at the government-originated TARP.

“Troubled” is an Orwellian word to describe debt that was knowingly issued by banks to people who would never pay it back in order to generate outrageous fees and bonuses for the executives. When the debt predictably went bad, “Relief” was provided to the criminal bankers on the backs of the taxpaying middle class.

Bank of America, Wells Fargo, and JP Morgan are bigger than they were before the financial crisis; their executives are still making millions, their “assets” are still “troubled,” and we continue to pay the bill, as will our children and grandchildren.

However, Ken Lewis’, Vikram Pandit’s, and Jamie Dimon’s grandchildren will inherit hundreds of millions of your tax dollars from their banker grandpas.

The 8,000 square foot castle-like McMansions are the symbol of extravagance and excess that represent the worst of America’s hyper-consumerism culture.

Even though the family unit has gotten smaller since 1970, the average home size has grown to 2,500 square feet from 1,400 square feet. McMansions are clearly unnecessary based on family size.

Essentially, it’s another example of Boomers attempting to show the world they’re successful. The bigger and gaudier the house the more flourishing you appear.

This need for approval, combined with the push by the National Association of Realtors that a house is always a great investment, is generating the biggest housing bubble in history. One glance at Robert Shiller’s chart showing home prices versus population growth and CPI proves beyond a shadow of a doubt that we've experienced manic increases in house prices.

It’s also clear that the downward spiral is not nearly complete. The housing cheerleaders continue to forecast a housing recovery that's still five years in the future.


Click to enlarge

It’s mind boggling that home prices could have surged that high while owners’ equity has plunged to 45% from 70% in 1980. People didn’t earn the McMansions, they borrowed them.

The Fed-created spiral in prices upward has trapped millions of late-comers in houses that are worth 20% to 30% less than the mortgage debt that's strangling them. More than 16 million home occupiers (not homeowners) are underwater in their mortgage.

The decisions to buy houses with nothing down -- using option ARM loans -- were choices made by people who should’ve known better. The decisions to make subprime loans to people making $30,000, to make no-doc loans, and to not verify income or assets were done to enrich the bankers, mortgage brokers, and real estate agents.

The $10.5 trillion of mortgage debt will need to be paid down or written off over many years, before the housing market will reach equilibrium again.


Source: Mike Shedlock; T2 Partners

The dream of living like a king has come to a shattering conclusion.

As mortgage delinquencies soar to all-time high levels, the kings are being led kicking and screaming to the foreclosure guillotine. Neighborhoods of McMansions in California, Phoenix, Florida, and Las Vegas are weed-infested and crime-ridden.

The American dream of home ownership spouted by former President George Bush and legislated through Fannie Mae (FNM) and Freddie Mac (FRE) has turned into a debt-induced nightmare.


Source: Mike Shedlock; T2 Partners The Alt-A reset crisis, which will begin in 2010 and not crest until 2013, is coming down the tracks at a swift pace.

The credit criteria used by the banks that doled out Alt-A loans were as lax as the subprime loans that precipitated this crisis. These loans already have delinquency rates of 33%, even before these resets kick in.

There’s no evading this calamity. There’s also no doubt how the Fed, Treasury, and government politicians will handle this next emergency.

If you've lived in a modest home, made your mortgage payments, didn’t use your home equity to buy a Mercedes, and pay your taxes, the government will seize your taxes again and dispense them to the profligate borrowers and criminal bankers.

You'll pay your mortgage and the mortgages on millions of other houses.


Source: Mike Shedlock; T2 Partners

The era of excess, gluttony, and overindulgence is coming to a wretched ending. The unraveling is complete. We've entered an epoch of crisis that will last for two decades. The coming winter will be cold, bitter, and harsh on most Americans.

Millions are learning that living in Beverly Hills was just a delusional dream. It’s time to enjoy the more basic aspects of life: family, friends, enjoying what you’ve got, and leaving the world a better place for our children and grandchildren.

It comes down to choices. It’s time for Americans to grow up and take responsibility for their actions and their futures. They must realize that the Fed and the banks are the only ones profiting from ever-expanding debt.

The Rising Debt Era hasn't benefited the borrowers as they borrowed toys they couldn’t afford. The beneficiaries were Bank of America, Citicorp, Wells Fargo, JP Morgan, and the other members of the banking cartel. These 10 big banks control 48% of all deposits, 50% of the mortgage market, and 87% of the credit card market, supported and protected by the Fed and Treasury Department.

The “too big to fail” continue to get bigger, as the FDIC will shutter 500 smaller banks in the next year.


Source: Mike Shedlock; T2 Partners

The banking cartel has no intentions of relinquishing power. It'll be left to average Americans to make the right choices.

The government will continue to push Cash for Clunkers publicity stunts to keep their debt civilization going. The consumer society needs to be put to rest.

Americans must ask themselves a few questions: Does a $10,000 Rolex watch tell time better than a $50 Timex? Will an $85,000 BMW 750LI get you to the supermarket better than a $15,000 Honda Civic? See also, Auto Loans Spinning Out of Control.

When I started researching this article, I came across a Heritage Foundation report called "How Poor Are America's Poor? Examining the 'Plague' of Poverty in America." The article makes it clear that the low-income people in America don’t fit the portrayal of living in poverty when compared to poverty in Africa and much of the developing world. The report concludes:
 

The typical American defined as "poor" by the government has a car, air conditioning, a refrigerator, a stove, a clothes washer and dryer, and a microwave. He has two color televisions, cable or satellite TV reception, a VCR or DVD player, and a stereo. He is able to obtain medical care. His home is in good repair and is not overcrowded. By his own report, his family is not hungry and he had sufficient funds in the past year to meet his family's essential needs. While this individual's life is not opulent, it is equally far from the popular images of dire poverty conveyed by the press, liberal activists, and politicians.

The main causes of child poverty in the United States are low levels of parental work, high numbers of single-parent families, and low skill levels of incoming immigrants. By increasing work and marriage, reducing illegal immigration, and by improving the skill level of future legal immigrants, our nation can, over time, virtually eliminate remaining child poverty.

The Heritage Foundation report missed one key aspect of being poor in America. The politicians and banks have taken advantage of the poor’s lack of education regarding the perils of debt, and have enslaved them in a monthly-payment plantation.

The poor don’t own the cars, electronics, homes, or appliances. They’re renting them until they can no longer make the payments.

The politicians have colluded with the Fed and banks to provide bad money to the poor in order to keep them satiated and pliable.

When the debt predictably goes bad, the banks are compensated by their government cronies with middle class’ tax dollars.



"When I was a child I spoke as a child I understood as a child I thought as a child; but when I became a man I put away childish things."
-- I Cor. xiii. 11.

Americans, led by the Baby Boom Generation, have been living like spoiled children for 30 years. They have thought like children, with instant self-gratification as their sole aspiration.

It’s time to put away childish things. Hard times have arrived. We’ve kicked the can down the road for a generation. Our long-term structural problems have now collided with our current debt-induced tragedy. Current policies that further the expansion of debt will ultimately lead to the collapse of our economic system. The timing is all that's in doubt.

Materialism has not provided what we need. As our current crisis deepens, luxury items will seem phony. Childish symbols like yellow rubber wristbands and yellow, pink, and rainbow ribbon stickers on our SUVs do nothing to change the world.

When you’re walking down the street, look people in the eye and say “hello” rather than stare at your feet or check your latest text message. Deeper personal relationships with family and friends will become crucial.

The thieves and crooks occupy Washington and Wall Street. We don’t need what they’re selling. Instead of accumulating stuff, give to people who need it. Donate to Purple Heart, the Salvation Army, or any other worthy charity. Donate your time to Manna, Habitat for Humanity, or any other worthy cause. Don’t delegate your role in caring for your fellow citizens to the government.

Americans will soon realize that what they wanted was not what they needed.

Join me at TheBurningPlatform.com to debate the future of our country.