capitalist economy like ours, per Megan McCardle’s
new book, and now I am back with a full review
of that book:
First of all, more bankruptcy cases are coming, because they are closely co-related with consumer debt, which is way up. Again.
The Federal Reserve Bank of New York released data in February that showed American consumer debt has risen higher than it’s been since 2011, totaled at $11.52 trillion. This is up one in ten consumers had over ten credit cards in 2010, while the average individual had four, with each household dealing with an average of $6,500 worth of debt. Over 2 million households is dealing with over $20,000 worth of credit card debt.of 2013, the greatest increase seen since the third-quarter of 2007. While debt is still staying well below it’s highest point in 2008 at the time of the financial crisis — 9.1 percent below — personal debt is still concerning when you consider the stats. According to Business Insider,
We have over a trillion dollars of student loan debt alone.
McCardle takes an example of a photographer from Denmark, who borrowed for his business, when it was growing, including borrowing against his house.
Well, the bubble burst in Denmark as well. Around the same time as here, 2008, but, six years later and this guy is still fighting to keep his head above water.
But in Denmark, as in most of Western Europe, indeed, the rest of the world, bankruptcy is difficult.
The creditors, including the government, must agree, and they do the bankruptcy filing, in effect.
Foreclosure is easier in Denmark, too, and his house can still be taken away. Even if he makes monthly payments, the bank can call the loan.
McCardle’s point is, this guy once had a small business, with employees, and he has been taken out of commission by his past mistake.
She correctly notes that most small businesses in America are started by personal borrowing, both cash advances from credit cards, and personal guarantees for any credit extended to a new corporation or other business entity.
She makes the case that an economy works better when the losses from prior risks can be wiped out, so that folks can start over.
Or, in the case of our student loan borrowers, start for the first time.
Bankruptcy. A good idea that benefits all of us.