Thursday, December 29, 2011

Hidden Signs of Financial Collapse - Part Three - Debt Bubbles

Ask any child and they will tell you that all bubbles eventually pop. They will also tell you that it doesn’t take much effort to make them pop.  In a system where we continue to use new debt to pay for old debt, there will eventually come a breaking point and things will have to change. Otherwise, that bubble will pop and there won’t be anything left afterwards.
Our current financial system is loaded with lots of debt bubbles and eventually they will start to pop. Most everyone would agree that our national debt is the largest one of these bubbles but it continues to be artificially maintained by a system that is systematically increasing the money supply and the level of debt with little or nothing to back it up. Unfortunately, many state and local governments have followed their lead and are now having to deal with debt bubbles of their own. Even the large corporations are attempting to mimic the government in maintaining their own little debt bubbles.

The sad part is that debt bubbles also exist on an individual level. Too many of us have our own little debt bubbles hidden in the closet and are failing to deal with the problem. Any of our personal debt bubbles can pop suddenly and without warning if something goes wrong. It could be the loss of a job or a sudden health crisis. Whatever the reasons, the results can be very unpleasant to deal with when it happens. You may wind up creating an even bigger personal debt bubble. This can make an already bad situation even worse.

Credit card debt, college loans, home loans and various other forms of consumer debt are at all time highs. This is especially true as prices for goods and services begin to creep higher and higher due to inflation which is currently quietly lurking in hidden places within our economy. When lines of credit are being used to finance the purchase of everyday items such as food, clothing and transportation needs, it doesn’t take a rocket scientist to figure out that our system and we are in trouble.

Will all of these different debt bubbles pop all at once? They probably won’t. Some debt bubbles are going to pop quicker than others, some will just get bigger (the national debt?) and others will remain in place for the time being. It is a more likely scenario that these bubbles will pop at different stages.

Some of these bubbles have already popped and the effects are having serious consequences on individuals everywhere. The housing bubble is just one example. With the number of vacant homes at an all time high (due mainly to foreclosures), many local neighborhoods have been left with plummeting home values. Many of the remaining homes in these neighborhoods have seen dramatic decreases in home values to the extent where the mortgages are in excess of their current home values despite government attempts to solve this problem.  This is despite a rise in property taxes on these same homes as state and local governments continue to try and prevent their own debt bubbles from bursting.

As these debt bubbles start to pop, different segments of the economy are going to be affected. It has already happened in several areas of our economy. It will probably take several years for all of them to pop but sooner or later they will burst. Unfortunately, the old debt bubbles are merely being replaced with new ones. It’s time we learned to avoid debt and stop paying for it with more debt. That debt bubble will eventually pop leaving nothing behind.

This dance has lasted way too long and it’s finally time to pay the band.

Are you avoiding the personal debt bubble?

Staying above the water line!



This is merely an opinion of this writer and should not be considered financial advice of any kind. Use or misuse of this information is solely the reader’s responsibility.


One Fly said...

We are in deep trouble. There are huge differences of opinion of how we got here.

I have two things to say without trying to make this political but you brought it up Rwalker. And that is I think many Americans take the position the !% does. We need good legislation now and if anyone thinks we'll get any before the election or after it is living a delusion. This system is incapable at this time to do so.

It's not going to get better anytime soon and downsizing is what you have to do to survive. It's not going back to the old days. It can't. We are forever changed as a country.

Take a look people - 50% of Americans live at poverty level but we have unlimited funds for war. I'm so sick of it.

I want gunmint in my life. I want local post offices and my school districts to have the necessary things to teach/roads plowed/trash picked up/ decent water etc. The idea the private sector will provide all this is a nonsense.

The bill has to be paid and it's hurting now but the real hurt is coming if we continue on the same path which we are on.

Good post!!

May the New Year be as good as this one and not worse and hopefully much better to all who come by here.

riverwalker said...

To: One Fly

Unfortunately, I don't think the "system" will improve much without a major change. Depending upon how that change comes about will be the important part. If it's forced on us by circumstances in an uncontrolled manner, that's when the bottom will almost certainly fall out of the system.

Till then, I try to control the things within my power...mainly my own personal levels of debt. With me, it's a matter of personal responsibility and I don't expect the government or anyone else to bail me out if I make bad financial choices.

I try to keep my personal debt levels as low possible. If something bad happens, it won't leave me in a position where I'm struggling to keep up or worse off than I am now.

We are definitely in economic trouble and it looks like that ship is going to sink...drowned in a sea of debt.

I plan to stay above the water line!

Thanks my friend.


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