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Private Debt Hurting the Economy

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    Reason Foundation director of economic research Anthony Randazzo weighs in on consumer debt.

  • Duration 3:44
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So much well after speaking briefly with my next -- yesterday afternoon we learned a privately held debt in the US has reached thirteen trillion dollars.

And that number continues to rise and -- -- as a reason foundation director of economic research welcome back to you.

-- got cut off because the president had the nerve to interrupt but time let's have our conversation thirteen trillion in privately held better consumer debt.

Yes that's household -- and -- -- it's really split up but that's basically credit card debts and mortgages and this is getting that not nearly enough attention as a big problem with the economy I -- talk about monetary policy talk about housing policy those are important things is it you know whether -- not -- to stimulate the economy NI how much -- income inequality -- those those are important topics discussed but.

All underlying all that is the fact that we have a lot of -- on household balance sheets so individuals are consuming as much one of the reasons what you might see Best Buy sales down you know during the bubble people are going to buying appliances are fine.

-- screen TVs with the amount of debt that they have.

There's not buying its models how do you motivate people -- to.

Either pay down their debt or throat out capex doesn't -- I mean.

And part of the product part of the problem is is that people have lowering income so since 2009 move over this past presidency you've had real median income has declined about 5%.

So we will have less money.

Which means that there are now turning to credit cards and -- we saw that actually start to decline between 2009 and 2000 tenants in.

-- 2.5 percent all the way up in the 2011 but over the past year and a half.

That has begun to increase particularly consumer credit consumer credits gone up about 7%.

Since the summer 2000 -- You know and I think about rising debt lets you think of our own national debt and here are approaching the ridiculous on sixteen trillion dollars million an irritating is that ridiculous sums up -- yet did did.

Good correction on their we -- seeing what's going on in Europe so I mean is there.

-- problem is there a threat of consumer debt becoming a bubble I've -- it's for that term being used to describe loan debt student loan debt.

-- think I think the problem is that we have consumer debt that drives bubbles so we have a lot of concern and so a lot of student loan debt that will build up.

To the point where now we just inflated the cost getting a college degree and so.

You you're going to have fewer people going to college as a result which may be good thing if they're going to trade schools focusing on the stuff but if that if -- -- Counting on for recovery these people borrowing more trying to lower interest rates whether or not to Federal Reserve or whoever is trying to push down interest rates so that we can borrow more cheaply and we and that's what drives the economy forward if that's the goal.

That is a bubble that's there's a huge part of what drove the previous bubble -- -- this and we'll bubbles even before that so I I think that that the fact that we're seeing.

But consumer debt -- slowdown and its decline it's deleveraging process should be concerned.

And I think that consumer credit that.

That -- credit cards going up that that should not be the baseline -- -- -- likely you're seeing in the mortgage industry with banks stepping in the federal government coming in it's obviously very controversial to try to kind of bail people out of these mortgages that they can't afford.

So -- my personal views that I think that housing that needs to decline a lot faster than it is right now it's slowing things down and we could've actually probably cleared out a lot of the toxic debt that's and housing a couple of years ago.

It's understandable the various cover perhaps that we've tried to use to to help homeowners and because if you're homeowner that's gonna lose your house that that really sucks.

And I can understand Paulson just wanting to USA the person the moment but the reality is now -- dragged that out for a long time we're gonna have another three to five years.

Of this decline we need to get rid of toxic that a lot faster otherwise -- not -- -- real recovery this is a great discussion have to come back and give us updates -- this modest progress thanks financing.

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