The debt monster is always hungry

As Saipan continues to dig its economic grave, our brethren in the United States are starting to hear some financial dirges as well. For chronic debtors (no shortage of those in the states), recessionary pressures can have dire overtones.

The lesson applies just as much here in the Commonwealth as it does in the states. Consumer debt can, indeed, make life a miserable proposition. And it is only going to get stickier, as the U.S. overhauls bankruptcy laws and makes it harder to dodge creditors and stiff the repo man.

I don’t have any data for our fair Commonwealth, but numbers for the United States show that the debt monster is sure growing. Over $1 trillion was purchased using plastic last year. Of course, that doesn’t readily translate into debt–some folks pay their card balances in full each month. Some, of course, don’t. And when you consider the snowballing reality behind 19 percent (or even higher) interest rates, it’s easy to see how the whole mess can swallow you up if you wind up losing your job, or if that Posh Spice poster I sold you last year actually loses some of its collector’s value.

And speaking of losing value, the grumpy stock market isn’t making things any better. A lot of Americans–my pals notably included–piled on the credit card bills, figuring that their growing stock portfolios were funding the sprees. They accumulated real debt against paper wealth–wealth that’s largely been disappearing lately.

You could make an entire career out of tracking household debt levels, and expressing them in terms of income, or in terms of home value, or in terms of total asset value, or, well, in terms of just about anything. What gets spooky is when you realize that things like home values and retirement portfolios zig and zag with markets, and that the economy sometimes looks like a financial house of teetering cards.

Here in Saipan, the credit game isn’t as universal as it is in the states. I doubt that most of our guest workers are flashing platinum cards. Their “propensity to consume,” as economists say, is generally low, as they sock away their earnings to fund their ambitions. By contrast, I suspect that the heavy debtors here are working for the government, since their steady stream of paychecks makes creditors lick their chops with glee. Bankers have related many a tale to me of ten buck an hour workers financing cars that cost a fat twenty grand.

But never mind cars. The real rub will come in when folks start losing their land to creditors. Article 12 keeps the land market illiquid, and we’ll see more and more land concentrated in fewer and fewer hands. A cynic, well versed in economics, would opine that they’ll want to keep Article 12 alive and well so they can scoop land up on the cheap…but that some time down the road they’ll want to lift the Article, so land values can go up and they can then sell off their holdings.

Neat, huh?

But until that day arrives–and it will arrive–we’ll be hearing a lot about debt burdened households trying to scrape by, both here and in the United States. This story is going to probably drag on for a couple of years.

Ed Stephens, Jr. is an economist and columnist for the Saipan Tribune. “Ed4Saipan@yahoo.com”