The Corrosive Effects of Massive Debt

A couple of weeks ago, commenter River, at Ricochet, put up a post with the above title. There’s no point in linking it, since it’s in the Member Feed section which is available only to paying Ricochet members, but I think it’s important enough to excerpt some of it here.

River quotes Dr. Keith Ablow, a psychiatrist, on the hidden costs of indebtedness:

With the U.S. debt now approaching $14.5 trillion, Americans are watching their elected officials debating whether the debt ceiling should be raised to allow the country to borrow even more money. President Obama has warned that if we don’t borrow more money, the federal government may not be able to make payments to Social Security recipients.

Very little has been written about the psychological effects of the American population living under a mountain of debt, but those effects are very substantial. Chief among them is a sense of being disempowered and anxiety-ridden—both individually and collectively—and, therefore, unable to assert our values here at home, let alone abroad.

This is the case because being in debt, and watching that debt grow, without a credible, concrete plan to retire that debt, makes millions of Americans of all ages feel like they are living in the last stages of a bankrupt culture. A free economy is a miracle, and when it is manipulated through fictitious bailouts and stimulus packages and taking of loans that can’t be repaid, the American people sense that the story we have been writing—of individual liberty and free markets and human rights—can’t be real, certainly not for the long haul. It makes them feel as though they are sleepwalking through times that are actually borrowed time.


It is no different than the feeling one would have living in a house which is over-leveraged and might well be repossessed. Until you had dealt with your financial reality and either downsized or took steps to generate more income you’d feel a sense of impending doom. You might well feel low self-esteem. And you’d feel like a fraud. How do look at your children, after all, and keep your head high when they are enjoying the house you know is built on financial fiction that can’t be sustained.


Americans are living in that house. It’s called our country. And, luckily, we can turn this mindset around. I have seen people buoyed in their mood, spirit and sense of destiny when they bite the bullet and resolve to live within their means. Truth—including economic truth—really does heal people, even whole cultures. If the debt ceiling is not raised, or a truly bullet-proof, inviolable plan is fashioned to retire our debt, then we will be restored.

“Over the past two years I have had more patients visiting me with depression and panic disorder stemming from economic problems and unemployment than ever before (in my nearly 20 years of practice).

Commenter Michael Kelley notes: “If you look at the statistics on how rapidly American households have been paying down debt since the collapse of the real estate bubble, you might be led to believe that there are more Americans who “get it” now than there have been in a long time. One should never discount the healthy growth patterns that are fostered and induced by the boom bust cycle. I actually think we’re in a healing stage as a nation and an economy and that people will be shocked at resurgence we’re going to experience over the next few years.”

…to which River responds:

I agree, a lot of people are learning and healing from this. But not the government itself!

7 thoughts on “The Corrosive Effects of Massive Debt”

  1. Yes.

    When you see strip malls and downtowns with many vacancies, it creates a fear within the individual consumer. Even if that individual consumer is doing okay.

    I guess I’m being opaque. I mean me, actually. I don’t feel like buying, I don’t feel like investing, I don’t feel like doing much but waiting out the storm.

    I imagine I am not alone in feeling this way.

    – Madhu

  2. you aren’t. i have been paying down all my debt for a couple of years now. i still buy things (“toys”) once in awhile but nothing on credit. classic speculative bubble pattern, creating false demand, resulting in empty retail/commercial space.

  3. Part of our problem today is that a lot of people have jobs linked to debt i.e. their customer pay for the goods and services the jobs provide by borrowing.

    The obvious example would be jobs linked to the debt driven housing bubble. Construction workers, real estate agents, IT workers for title companies etc all had jobs that were ultimately paid for by massive consumer debt. Other jobs also were funded by debt although less obviously. Plus, we have a lot of government workers whose jobs are funded by government borrowing. All those jobs are at risk as borrowing dries up.

    We’ve got to shift all those people to other jobs and that will take time and investment. Unfortunately, the current government is waging a war on investment and economic creatives.

  4. ” it creates a fear within the individual consumer”

    It certainly does for me. I’m about to buy a house. Not sure which one, because there are so many on the market. And every month one I dismissed as too expensive for its features drops its price $15,000-$20,000! Some of the estimated prices I’ve obtained (from reputable sources) suggest I offer less, sometimes up to 10% less, than the owners paid for the house. I don’t want to spend a pile of money then discover the price of my house has dropped 30% (and be stuck with the higher taxes from my purchase price). Some owners insist on $100/sq.ft.; others have come to realize that 80 to 90 is more realistic. And some are going for 70. (Foreclosed is cheaper, but riskier.)

  5. I don’t want to spend a pile of money then discover the price of my house has dropped 30% (and be stuck with the higher taxes from my purchase price).

    I had this exact scenario occur to me. I would strongly suggest renting another year or two unless you find one you have to have. A year ago, I was torn on this decision. Rents were higher then, also. One issue is the fact that I have a much beloved basset hound and I thought that would be a potential problem renting. I looked briefly at one house but the rent being asked was $2000/ month which seemed high.

    Now, we are a year later. I’m sure I could not sell my house right now. I put another $25 to 30,000 into it since buying. Prices have dropped like a stone. This is a mountain resort area which makes it a special case in many ways. The house I looked at to rent was finally rented for much less money, the broker told me. The comparison for Chicago would probably be Saugatuck, although that is farther from the city.

    Anyway, think very hard before buying now.

  6. I agree with the comments above; I am a general internist practicing in the Puget Sound area. Ours is a nice neighborhood–a neighbor whose home has been for sale for months plans to drop the asking price again; they couldn’t find a renter. I believe home prices will continue to drop.

    I work for a large not-for-profit healthcare system that has a budget deficit; employees are being laid off, and I know another system nearby is doing the same. I, too, see lots of patients that are stressed due to economic and job issues; I doubt there is anyone who doesn’t have a friend or family member with job problems. I have many patients who are state employees; they took a 3% pay cut and in general all report alot of stress in their jobs.

    I think ALOT about the coming financial crash; I wish it would come soon so we can get it over with. Perhaps you have seen there is a new cable TV show that features 4 families in the South who have been preparing for a financial collapse; I can assure you I will be watching it!

  7. I am a retired surgeon and make extra money by reviewing workers compensation claims. I’ve been doing it for about 10 to 12 years. I’ve also been teaching medical students how to interact with patients, including physical diagnosis. My workers comp income is off almost 90%. My retirement should be enough but it’s easy to get used to the extra income. Based on my own experience and that of the company I do these reviews for, (I’ve known the principals for 25 years) I would say the unemployment rate in California is far higher than acknowledged. It might be 40%.

    This is what the Depression felt like. My kids are all employed, fortunately, two are government employees, but it is a worrisome time. My youngest is still in college and was pretty much a “valley girl” type until a couple of years ago. She has worked as a waitress while going to school. That has been great experience for her. It is also a skill that will allow her to always find a job.

    She is majoring in French, which doesn’t sound practical except it is a major that requires effort and discipline. One of my medical students a few years ago had French as her undergraduate major. She also loves France and has a line on an internship for a French aerospace company that her uncle works for. She knows the owner’s son. She has learned enough street smarts to make her way, I think.

    I have a niece who should have gone to medical school but did not want the debt. She is happy as an OR nurse on the liver transplant team at Rush, in Chicago, and has her own rock band, with her boyfriend (She is 32).

    These kids will have to get used to a new world. There is no security. I have always been a futurist but I am getting like most old men in being reminiscent about how good the world of the past was. The ruling class is irreducibly corrupt. We will have a period of unrest for years now. I wish it were otherwise and that my kids and grand kids did not have to go through it.

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