Debt Pressures Build on Others
THE plight of national governments in regard to debt is being duplicated by others. Corporations, city and local governments, and individuals also are facing serious pressures because of too much debt.
It is getting more difficult to come out from under these debts. This is a main reason why the recession of the past few years proved to be so difficult for many. Loans could not be paid back; so bankruptcies soared.
Corporate Difficulties
As an example, Industry Week reported: “West German business failures reached a record high . . . Failures involving losses and debtor demands exceeding $400,000 jumped by 30%.”
In December 1976 The Wall Street Journal noted that Japanese corporate failures reached a record the previous month, adding: “Corporate collapses for all 1976 will total a record 15,000, up from the prior record of 12,600 set last year.”
In England, the Daily Mail reported that bankruptcies in Britain have soared to the highest level in sixty years “with nothing approaching it even in the depths of the depression of the 1930s.”
In the United States a number of large corporations failed, as did others. More banks went out of business than at any time since the country’s entry into World War II. Yet, the Institute for Economic Research warned that these “are just tips of bankrupt icebergs floating in a vast sea of debt.”
Cities in Trouble
Much the same thing is happening to a number of city, state and local governments. Perhaps the most publicized of all of these has been New York city. Its debts have mounted to about $13 billion. Last year the city was forced to halt payments on short-term debt, although the courts later declared such a move illegal.
But Business Week said in an editorial: “Actually, New York City’s troubles are harbingers of a broader problem. Every major city in the U.S. is going to have serious financial distress in the next three to five years.”
City after city is indeed going deeper into debt. Their tax revenues simply are not enough to pay for things they do. For instance, in the nation’s capital, Washington, D.C., expenditures since the 1960’s have increased about 15 percent each year, but tax revenues have increased only about 6 percent.
Japan reported that 39 of the country’s 47 prefectures, or states, would show deficits. Two cities already have declared bankruptcy. U.S. News & World Report estimated that “about 100 of Japan’s 643 cities will be in the red, up from 53 two years ago.” Many cities in other countries are finding similar debt pressures building.
Consumer Pressures
The average consumer in many lands is increasingly feeling debt pressures. In the United States, much of what the typical American has left after expenses goes toward paying off debts.
Hence, when the recent recession struck, many could not pay off these accumulated debts. That is why bankruptcies reached an all-time high.
Yet, consumer debts continue to mount. The Los Angeles Herald-Examiner reports: “The typical wage earner in Los Angeles is spending almost everything he earns. He lives near the limits of his income. Even a minor emergency could be disastrous.”
The newspaper noted that the “typical person” with debt problems had an income of $800-900 a month, but owed “about $10,000, usually to the bank, credit card companies, retail shops, and gas companies. And he is a nervous wreck.”
The Milwaukee Journal told of a ring of prostitutes that included housewives who “used their earnings to supplement family income.” The Tokyo Daily Yomiuri reported the suicide of a housewife “because she was hard pressed to pay back a loan made to build a house.”
True, some having difficulties today are not spending their money unwisely. It is simply that prices are so high that their incomes do not meet expenses. But on the other hand, many have spent unwisely on things that they have not really needed. They have gone over their heads in debt, and have had to pay the consequences.
Questionable “Security”
Even persons who have money in the bank have begun to feel somewhat uneasy in recent years. This is due to the fact that large bank failures have occurred.
In the United States, the Franklin National, one of the nation’s twenty largest banks, collapsed. In Germany, the large Bankhause Herstatt failed. A number of other banks also have failed. And so overextended are others that Martin Mayer, in a comprehensive survey entitled “The Bankers,” stated: “There are billions of dollars of potential loan losses in the system, and the clock ticks toward the moment of their detonation. The banking structure that is now building can collapse.”
But would that not be impossible in the United States? Are not deposits up to $40,000 “secure,” guaranteed by such agencies as the Federal Deposit Insurance Corporation?
True, but of interest is what Alvin Toffler says in his book The Eco-Spasm Report: “FDIC officials know what most of the public doesn’t: that the agency has only enough money on hand to cover about 1 percent of deposits. It cannot possibly meet a wild, runaway demand by hundreds of thousands of terrified bank customers.”
It is such a runaway that officials fear. This could take place if only a few countries went bankrupt, or if, due to a series of corporate or city failures, a large number of banks began to go under.
However, during 1976 was there not some economic recovery from the previous recession? Yes, there was, and more is hoped for. That is the pattern of recent decades. But recessions get more severe, and recoveries more moderate with higher permanent unemployment.
Regarding this, Baxter said last year: “The economy is rebounding now to be sure. But it is being supported by only a thin layer of liquidity [cash, or assets easily converted into cash] on one hand, and massive budget deficits on the other. History has proven that the latter destroys liquidity in the long run.”
But where does this leave you? What can the average person do to protect himself?
[Blurb on page 10]
‘The typical wage earner is spending almost everything he earns. He lives near the limits of his income. Even a minor emergency could be disastrous.’
[Blurb on page 11]
“FDIC officials know what most of the public doesn’t: that the agency has only enough money on hand to cover about 1 percent of deposits.”