blog.weProsper.org

Listening to a pair of economic analysts from NPR’s Planet Money explaining the banking crisis in plain language on This American Life this weekend, one anecdote stuck in my head long after the radio program ended. It was a snippet of a conversation with David Beim, a former banker and current professor at the Columbia Business School, who described how much debt Americans owe compared with the total U.S. economy.

Traditionally, consumer debt has represented less than 50% of our gross domestic product. But in 2007, the amount of debt, including mortgages and credit cards, equaled $13 trillion—or 100% of the country’s GDP. Only one other time in American history has our household debt reached the same level of our GDP. And that was in 1929.

For all the blame being heaped on Wall Street, banks, and toxic assets, Beim asserts that our problems today go much deeper: “The problem is not the banks, greedy though they may be, overpaid though they may be. The problem is us.” We have overborrowed, Beim says: “We’ve been living very high on the hog. Our living standard has been rising dramatically in the last 25 years. And we have been borrowing much of the money to make that prosperity happen.”

Simply put, Americans have too much debt. We have become a nation of spenders, not savers. And the only way out of this mess is to drastically change our ways. Beim, and the guys from Planet Money, don’t hold back when they say it’s going to be painful. There’s no easy fix for the banks, or for our society. Breaking old habits is going to be hard, but the government is not going to be able to solve this economic crisis on its own. We’re all in this together.