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December 04, 2004


Natala Menezes

hmm. so i think the thing to take away from this graph is the %-age of income that the debt represents. a 19 year old with $7,000 in debt -- where he/she probably earns sub-20K per year means that around 40+% of their spending is on credit...that's really really high...compare that to a person in their 60's who has savings (401k), assets (home, stock etc.) and larger incomes (more senior job status) and the 30K average probably represents something like 10% or less of their income-debt ratio...

just another way to slice the data, either way debt in these amounts seems tragic -- esp. when the average consumer is paying credit card rates in the upper teens. yikes!


Natala, you are spot on. When I hit 'post' the first time around, I knew I maybe should have drawn out a few of the explanatory permutations and disssected the info more.

The first item on the list would likely have been relative earning power. That said, I do not know how to quantify that distinction. Some of the assets you mention older people having (401Ks, homes) are exactly that, assets, and wouldn't necessarily be rolled into a debt/income ratio. Though, I do agree, it is likely older folks are making more. I also agree that kids are probably paying double-digit interest rates making debt service more harrowing.

As for larger homes, though I agree home size likely increases up through your 40s or so as you are growing your family, I would think it would stabilize then or maybe decrease. During this time, I would hope that people would be paying down the principle on their mortgages. Is this not the case? Are old folks waiting for the kids to leave and then buying their dream houses? Yikes.

Plus, the growing incomes only happen until a point, no? Retirement is not really an income generating era. Instead, seniors start consuming their savings, and depleting those 401Ks. So, what about the peak in debt during those years? Have folks not saved enough? Or, are we looking at something uglier, like healthcare and presciption medicine costs piling up?

So, yes, Natala, I think you are right. But, I also think there could be a wide range of other factors at play here. All told, I wish I had an economist or two on hand to tell us some stories from this data.

Max Brownstone

We have a confluence of factors happening right now:

1) increase in consumer debt
2) increase in government debt
3) increase in imports

Its easy to predict an economic implosion or collapse of the dollar however

1) the market doesn't seem to be pricing a disaster in, yet
2) which other currency would people want? Yuan? Euros? None of them are as safe as dollars.

All things are cyclical- if our government eventually gets its act together and gets more conservative in terms of spending and risk, we will get deficits back under control, and life will go on.

Or it could all crash.


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