The U.S. is in the midst of a private debt crisis.
As of March 2014, American consumers owe $11.52 trillion in debt, an increase of 1.6% from last year. The average household owes $7,115 on their credit cards and the average indebted household owes $15,252. Americans owe $8.05 trillion in mortgages (the average mortgage debt being $152,209) and $1.08 trillion in student loan debt. When combined with corporate debts the U.S. collectively owes about $28 trillion in private debt.
“Every major crisis of our lifetime has been caused by a rapid increase of our private debt,” says Richard Vague, chair of the Governor’s Woods Foundation. “They all were a function of runaway private lending.”
People focus too much on government debt, argues Vague, when they should be attempting to quell private debt.
“There’s reputed to be 10 million mortgages that are still underwater,” he says. “There’s perhaps a half or ¾ of a trillion in second-lean loans that are still a problem and haven’t been dealt with. Those to us are logical candidates for restructuring programs.”
Restructuring loans is a controversial issue and there’s little incentive for banks to do so. Vague suggests allowing banks to spread the losses over a very extended period of time with a one-time dispensation that says "you can spread your losses over 30 years if today you go to the borrower and restructure with them’ they would get rid a problem and get to clean things up.”
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