Introduction to American loans
When you say “American”, as a rule, the following picture appears in the imagination of many: a man with a big smile, wearing not very elegant, but clean and good-looking clothes and with an open look, gets into a new car and drives to his house on the outskirts of the city. Not if you know about the American loan.
But far from everyone thinks that Americans buy many of these benefits on credit. It is unlikely that you will find an average American who has no debt obligations. Even those who do not have credit card debts or who conscientiously pay all obligations on them monthly, probably have a mortgage for a house or a car.
Federal Reserves and the American loan
The Federal Reserve publishes annual credit card debt data for Americans. According to the results of 2016, the total amount of consumer debt amounted to $935.6 billion. Since 2011, according to Bloomberg, this amount has grown by $100 billion.
According to financial experts, one of the reasons for the high debt of Americans is the availability of loans.
When someone offers you a loan, it’s hard to refuse. Existing credit, experts say, is a driving factor in the accumulation of debt both in the short and long term. Partly the dependence on credit cards can be explained by their availability, they can be many, and each of them is allowed to accumulate debt.
Credit Card holders and their American loans
Only 35% of credit card holders, without a balance, pay their financial obligations on cards monthly. Such consumers use credit cards for convenience and, possibly, to receive various bonuses, for example, miles per flight, and not because they need loans.
But more credit card owners borrow and accumulate debt because they simply do not have enough salaries to fully pay all their bills.
Credit dependence for many begins in youth when you need to borrow to pay for education – to take the so-called “student loan”. Since higher education in the USA is not free, but rather very expensive, students whose parents cannot afford to pay for tuition take a loan. Besides, young people want to dress well, go to restaurants and have fun, but there is no money. And here, of course, a credit card comes to the rescue, which allows you to spend more than you earn. As a result, young people are hooked – often so tenacious that some pay their credit card debts and student loans for up to forty years or more.
Marriage and the American loans
Such debt is one of the reasons why Americans get married so late and give birth to children. They cannot take on additional, primarily financial responsibility for the family, and living with parents in the USA is not accepted. Those who nevertheless get married and have children immediately fall into a new financial dependence, this time from insurance companies, bank mortgages and loans to pay for children’s education.
So everything turns in a circle. Therefore, the next time you meet an American, remember that you, with your, perhaps, not very luxurious incomes, if you count all debts and credit obligations, you may be richer than him.
The total debt of households is now 21.4 percent higher than the level achieved after the financial downturn. The largest amount of debt – 9.12 trillion dollars accounted for by a mortgage. Could this be the detonator of another global crisis? American analysts believe that the growing borrowing of the population does not give cause for concern. You can learn here how to find the best loan lenders and get your best deal.
Tim Worstall, a researcher at the Adam Smith Institute, Forbes columnist, explains that although the American debt has reached its 2008 level in absolute terms, this does not pose a threat since the country’s economic situation has since become much more stable, GDP has grown, and inflation devalued the money somewhat. In his opinion, it is more correct to start from the ratio of the total volume of household debt to GDP, and it has decreased significantly over ten years.
The only “point on the horizon” is the years 2020-2021, when, with a sufficient degree of probability, the next cyclical economic crisis, similar to 1998 and 2008, will occur. This may exacerbate the situation for problem groups of borrowers in America. It is not currently possible to assess what proportion of the population this affects. But large-scale consequences for the global financial system, in my opinion, will not be. As long as US economic growth is present, there are no significant threats.
Debts grew because, for several years (approximately from 2008 to 2016), lending rates in the country were extremely low, which encouraged people to borrow from banks. For several years in a row, mortgage rates were even lower than the officially declared inflation rate.
This has become a powerful incentive to increase the credit burden. Many took advantage of this, and therefore the total amount of debt has increased significantly. But the financial burden on borrowers was insignificant due to all the same low rates. Now they began to grow slowly, approaching inflation, so, most likely, further credit growth will slow down. Thus, the so-called American loans will slow too.
The US real estate market does not signal any serious problems. To cause a systemic crisis in the economy, similar in a scenario to the crisis of 2007, the accumulation of debt should be combined with a fall in house prices, but for now, they show an upward trend. “After 2008, the global banking system was substantially reconfigured so that its capitalization corresponded to risk. This rule, introduced precisely during the crisis, still works and ensures the stability of banks issuing mortgage loans. Yes, the growth in lending volumes is” red flag “, which you need to watch, but about the beginning of the crisis of speech so far, I think, is not coming.
For Americans, their debts cost half as much as for, let us say, Russians. So, on January 1, 2019, the weighted average mortgage rate in the United States was 4.51 percent per annum, while in Russia it reached 9.66 percent. The total volume of all mortgage loans issued as of January 1, 2019, according to the Bank of Russia, was 6.4 trillion rubles. A similar indicator in the United States at the beginning of the year reached 9.12 trillion dollars, which is almost 94 times more.
About the author: Melisa Marzett is a freelance writer who is currently working upon articles for resumeperk.com. Along with writing, she has an amazing chance to travel throughout the world keeping her ears open. As a former journalist and a translator, she enjoys communication and a constant stream of information.