Debt in America, Essay Example

The economy has suffered a major downturn due to bank failures, big corporations stealing from the company and the customers. Due to the economic crisis there has been mounting national debt, student debts, and international debt over the past decade that has resulted in the housing crisis, market crashes, and bank failures. The debt in the America has resulted in the loss of employment and income. Due to this it has been an increase in unemployment and more students graduating with more debt than a decade ago. The position of this paper will focus on the growing debt in the America that has left millions unemployed and students with massive student debt that has left millions of graduating seniors with less job options within the job market.

In 2008 we saw the direct decline in the economy. No longer were homeowners able to get the loans that were so easily accessible. Jobs were ending, stock market crashed, and people were literally losing their minds. What made matters worse is that the economy tanked due to the mounting debt within United States borrowing from international allies. The global economic crisis wasn’t comparable to the Great Depression but younger generations had only read about it, so the current crisis is unaccustomed to them. “However, the collapse of two Bear Stearns Hedge funds in summer of 2007 exposed what came to be known as the subprime mortgage crisis, reintroducing the world to an era of bank failures, a credit crunch, private defaults and massive layoffs.” (Yale Global Online) The direct cause of the economic crisis varies from economists to analyst. Blame is directed towards housing bubble that ultimately peaked in 2006 due to lax screening  of housing applicants or sub-prime owners, policies that encouraged owning a home with easier access to loans, the overvaluation of sub-prime mortgages that many brought assuming the housing prices would continue to increase. This caused the value of securities linked to the real estate market to ultimately plummet and cause a ripple effect within the financial market. This negatively affected the stock market which subsequently crashed globally as the securities suffered major losses and international trade decreased. A broader blame comes the Senate, as before the economic downtown many credit and rating agencies looked the other way as many insurance companies, investors, and banks brought up securities and CDO in hopes of a major payoff. After the downturn in the housing market, many agencies were still giving triple A (AAA) credit to for RMBS and CDOS. When it finally came to ahead, industries began to quickly sell them off at alarming rates. “Those widespread losses led, in turn, to a loss of investor confidence in the value of the AAA rating, in the holdings of major U.S. financial institutions, and even in the viability of U.S. financial markets.” (Senate 13)

Lastly, the economic crisis was brought on the contribution of the two major investment banking abuse. Goldman Sachs and Deutsche Bank both have played a major role in the development of the United States economy presently. Both investments were the two major leaders in the United States housing mortgage market. From political inquiry many found that the two investment banks formulated and design mechanisms in which the ease of supplying and buying of CDOs, CDS (credit default swaps), and RMBS were promoted and acted as an underwriter for the CDS contracts. “In extreme cases, some investment banks set up structured finance transactions which enabled them to profit at the expense of their clients.” (Senate 15) Overall there were several players behind the economy that led to its downturn. Each factor contributed without the regulation or oversight of the U.S government in protecting its citizens from the consequences that would ultimately lead to sky high inflation, unemployment, and massive amounts of debt that have the young generation with few opportunities to achieve the economic freedom as their parents and grandparents.

The economic crisis left many without options other than to file for bankruptcy due unpaid mortgages, many big ticket items once brought in mass were not being brought. Consumer shopping and spending decreased as a result of the economy, which has left many in the retail and sales business unemployed. When the economic crisis occurred unemployment was centered at 4.6% after nearly four years later in 2011 the rate was at a staggering 9 % and currently the rate is hovering slightly at 7.6%. (Bureau of Labor Statistics) The economic crisis cut over five million jobs from the job market and many businesses either closed their doors are laid off a half of their workforce. The costs however were significant on the United States, as the 2008 Economic crisis cost the US nearly $650 billion, and the average household lost over $5,500 of income between 2008-2009. (Pew Institute)  Within the housing market it lost over $3 trillion in real estate earnings and currently there are still over six million unpaid mortgages across the United States.

The Economist quoted that “The International Labour Organisation estimates there are 75m 15-to-24-year-olds looking for work across the globe.” (York) That also point out that is doesn’t the fastest growing number of young adults and youths that are largely unemployed. After the economic crisis the economy took a major hit, as did the entire country as the acquired a massive debt that disallowed them resources to steady putting jobs and money in to the job market. As a result the debt in America had major consequences globally as businesses and economies all around the world began to fail. According to the World Bank there are over 250 million youths and young adults unemployed. In total there are 13.5% of young adults ages 20-25 that are unemployed in the U.S. Not only is this worse than the national average but African American rates are the highest percentage of unemployed citizens.  The high unemployment has seen the highest number of people on welfare and receiving public assistance since its inception. “Food stamp caseloads are at a record high level: reaching 33.8 million individuals in more than 15 million households.” (MDRC 3) The number below the poverty is also one of the highest. “The poverty rate has reached 14.3 percent, the highest level since 1994, with a record 43.6 million people living in poverty.” (MDRC 4) The cause of this is no doubt due to the influx of individuals left without jobs. Crimes such as petty theft and robbery have increased due to people seeking other alternatives in order to provide for themselves or their families. The economic crisis has left many without the resources to maintain their standard of living and have forced more families to be homeless, living out of their cars, or in shelters. (MDRC 3) Although President Obama has added few hundred thousand jobs there are mainly in the service industry, waiters, fast-food attendants that are low wage and low earning.

The ones left to apply for these jobs have to compete with an entire job market that is flooded with recent college graduates and graduates who have been out of work and living with their parents for years. This generation has marked the first time that jobs will not be readily available for them when they graduate. The total amount of student debt has reached almost $1 trillion dollars. “In the first quarter of 2013, consumers owed $986 billion in student loans, up $20 billion from $966 billion in the fourth quarter.” (Shah) Due to rising tuition costs and interest rates, student debt has increased 70 percent since 2008. This mounting debt has not only drawn the ire of students and families, but also the Federal Reserve. Inconsequently, the debt has soared in the past five years soon after the economic crisis. The banks and lending agencies went into crisis mode and raised the interests’ rates on all loans including students. The growing increase in colleges force to raise their tuition has left many families with no option but to borrow more from the banks. However when students eventually graduate there are dropped into a world were jobs are scarce and their skills and credentials are best served working a service industry jobs where new jobs are being pumped in. “Alternately, she said, some hypothesize that big loan balances are “crowding out” household formation – that is, causing young people with big debt to pay off to delay getting married, buying houses and having children until they pay off their loans.” (McGrane) The value of education even at trade schools sets students back tens of thousands of dollars in debt, with no job available after graduation makes it difficult for students to repay the loans sending loans into default and black spot on their credit needed later for car loans, buying a house, and securing their future.

The economic crisis has caused a triple effect of high national debt, high unemployment, and high student debt. The numbers are staggering and compared to before 2008 the numbers were increasingly smaller. However due to lack of regulation and other major factors the economy collapse sending millions of people out of work, and essentially setting up the younger generation to graduate with a mountain of debt and no jobs to repay them. The economic crisis has forced many individuals to seek government assistance and welfare, while student try to look for other alternative education. Analyst point to a resurgence in the economy with more opportunity for job growth, low house prices, and a slight increase in consumer shopping. However the United States still has far to go as they are still at their debt ceiling, student debt almost a trillion dollars, and more students seeking secondary education in order to compete with the current job market. In order to solve this problem the government must create initiatives that address each of these problems in order to secure the financial future for the up generations.

Works Cited

“Economy at a Glance.” Bureau of Labor Statistics. 2013. Web.  15 July 2013. http://www.bls.gov/eag/eag.us.htm

“Global Financial Crisis.” Yale Global Online. 2013. Web. 15 July 2013. http://yaleglobal.yale.edu/content/global-economic-crisis

“Labor Force Statistics from the Current Population Survey.” Bureau of Labor Statistics. 2013. Web. 15 July 2013. http://www.bls.gov/web/empsit/cpseea10.htm

McGrane, Victoria. “Fed Officials Looking Closely at Student Debt.” The Wall Street Journal. 2013. Web. 15 July 2013. http://blogs.wsj.com/economics/2013/05/17/fed-officials-looking-closely-at-student-debt/?KEYWORDS=student+debt

“Rethinking Welfare in the Great Recession: Issues in the Reauthorization of Temporary Assistance for Needy Families.” MDRC. 21 Sep. 2010. Web. 15 July 2013. http://www.npc.umich.edu/news/events/safetynet/rethinking-the-safety-net-readings.pdf

Shah, Neil. “Vital Signs Chart: Nearly $1 Trillion in Student Debt.” The Wall Street Journal. 16 May 2013. Web. 15 July 2013. http://blogs.wsj.com/economics/2013/05/15/vital-signs-chart-nearly-1-trillion-in-student-debt/? Why is youth unemployment so high? KEYWORDS=student+debt

“The Impact of the September 2008 Economic Collapse.” Pew Institute. 2011. Web. 15 July 2013. http://www.pewtrusts.org/our_work_report_detail.aspx?id=58695

“Wall Street and The Financial Crisis: Anatomy of A Financial Collapse. “ U.S Senate. 13 April 2011. Web. 15 July 2013. http://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/FinancialCrisisReport.pdf?attempt=2

“Why is youth unemployment so high?” The Economist.” 2013. Web. 15 July 2013. http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-why-youth-unemployment-so-high