At least once a week, Mrs. Newby or I - and sometimes both of us - receive offers of loans, another credit card or a chance to remortgage our home. All this junk mail goes straight into our recycling bin, but we seem to be the exception that proves the rule.
There are about 610 million credit cards in circulation in the States - almost two for every man, woman and child. On average, cardholders have 3-4 credit cards each, and a large proportion seem to use them as an alternative to a bank loan, only ever paying off the bare minimum. As a result, they currently owe a total of $2.5 trillion on their credit cards, or $8000 per person.
Believe it or not, that's only the tip of the iceberg. If you factor in debt on real estate, Americans together owe a staggering $13 trillion, i.e. $42,500 each.
The recent US housing bubble was a stark reminder of how this debt system has spiraled out of control: because banks made a fortune bundling and then reselling loans, they offered more and more people ever larger mortgages. And when the greedy banks ran out of eligible customers, they gave 100% mortgages to increasingly unsuitable borrowers - eventually even those patently unable to repay them (these loans were called NINAs: no income, no assets). After all, they knew that if the debtors defaulted, the banks could seize the house and auction it off, presumably at a profit because house values had increased steadily for decades.
When the bubble burst and house prices plummeted, thousands of people found themselves "underwater", that is, owing far more than the value of their house. So many did the unthinkable: they declared bankruptcy, handed their house keys back to the bank and walked away from their property. Some, like our own neighbours, simply packed all their belongings and disappeared overnight.
Suddenly, banks found themselves owning masses of property worth far less than they were owed and which they couldn't sell anyway because nobody had the money to buy them. "For sale" signs littered streets across America - ours included - as did empty homes with repossession orders pasted to their windows. Yet no-one ever bought these houses, so they stayed empty for months and even years.
Oddly enough, little appears to have changed. To prevent the banks collapsing, the government bailed them out, and now they are again offering 100% mortgages. And people continue to live from one month to the next, using one credit card to pay another off.
We recently came across a startling example of how insane this borrowing is allowed to become: last month, the 85-year-old father of a friend of ours had to sell his family home of half a century and move into a shared flat because he couldn't afford to continue paying off his mortgage.
He and his wife bought the house for $40,000 back in 1961. Having taken out a second mortgage and borrowed on his house repeatedly over the years, he still owed the bank $110,000.
There are about 610 million credit cards in circulation in the States - almost two for every man, woman and child. On average, cardholders have 3-4 credit cards each, and a large proportion seem to use them as an alternative to a bank loan, only ever paying off the bare minimum. As a result, they currently owe a total of $2.5 trillion on their credit cards, or $8000 per person.
Believe it or not, that's only the tip of the iceberg. If you factor in debt on real estate, Americans together owe a staggering $13 trillion, i.e. $42,500 each.
The recent US housing bubble was a stark reminder of how this debt system has spiraled out of control: because banks made a fortune bundling and then reselling loans, they offered more and more people ever larger mortgages. And when the greedy banks ran out of eligible customers, they gave 100% mortgages to increasingly unsuitable borrowers - eventually even those patently unable to repay them (these loans were called NINAs: no income, no assets). After all, they knew that if the debtors defaulted, the banks could seize the house and auction it off, presumably at a profit because house values had increased steadily for decades.
When the bubble burst and house prices plummeted, thousands of people found themselves "underwater", that is, owing far more than the value of their house. So many did the unthinkable: they declared bankruptcy, handed their house keys back to the bank and walked away from their property. Some, like our own neighbours, simply packed all their belongings and disappeared overnight.
Suddenly, banks found themselves owning masses of property worth far less than they were owed and which they couldn't sell anyway because nobody had the money to buy them. "For sale" signs littered streets across America - ours included - as did empty homes with repossession orders pasted to their windows. Yet no-one ever bought these houses, so they stayed empty for months and even years.
Oddly enough, little appears to have changed. To prevent the banks collapsing, the government bailed them out, and now they are again offering 100% mortgages. And people continue to live from one month to the next, using one credit card to pay another off.
We recently came across a startling example of how insane this borrowing is allowed to become: last month, the 85-year-old father of a friend of ours had to sell his family home of half a century and move into a shared flat because he couldn't afford to continue paying off his mortgage.
He and his wife bought the house for $40,000 back in 1961. Having taken out a second mortgage and borrowed on his house repeatedly over the years, he still owed the bank $110,000.
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