Debt Serfdom in One Chart
May 5, 2012
The essence of debt serfdom is debt rises to compensate for stagnant wages.
I often speak of debt serfdom; here it is, captured in a single chart. The basic dynamics are all here, if you read between the lines:
1. Financialization of the U.S. and global economies diverts income to capital and those benefitting from globalization/ “financial innovation;” income for the top 5% rises spectacularly in real terms even as wages stagnate or decline for the bottom 80%.
2. Previously middle class households (or those who perceive themselves as middle class) compensate for stagnating incomes and rising costs by borrowing money: credit cards, auto loans, student loans, etc. In effect, debt is substituted for income.
3. The dot-com/Internet boom boosted incomes across the board, enabling the bottom 95% to deleverage some of the debt.
4. When the investment/speculation bubble popped, incomes again declined, and households borrowed heavily against their primary asset, the home, via home equity lines of credit (HELOCs), second mortgages, etc.