According to CNN this morning, Japan, the world’s second-largest economy has pulled itself out of the financial recession it’s been in for the last couple of years with latest GDP figures showing a growth of 0.9% in the last quarter. Japan is now in the same company as Hong Kong, France and Germany, who pulled themselves out of economic recession a few months ago. But, if Japan, Hong Kong, France and Germany can pull themselves out of recession, why hasn’t America followed suite? If America is supposed to be the ‘world leader’, why isn’t it leading instead of following? It’s quite simple really – personal debt.
In the last few decades, Americans have gone from a nation of savers to a nation of people who have more personal debt than any other country in the world. According to Bankrate.com, the average American personal debt runs at over $8,400 for credit card debt, with average household debt running at $14,500 and this doesn’t count mortgages. For a country that in the 1930s had most middle class and upper class people with no personal debts, this is shocking. It’s also what’s dragging America down.
For Japan, a country where savings have always been paramount to financial security, it’s much easier for them to get out of the recession. The Japanese are still saving but, because they’re not in huge amounts of debt, they can also afford to spend. And, as the recession lessened, the Japanese began to spend more. Personal spending helped the economy strengthen and Japan slowly pulled itself out of recession.
Americans, on the other hand, are so strapped for cash that every penny many Americans have left after paying bills is going to credit card debts and other bills. Americans buy large houses they cannot afford, big cars they don’t need, and electronic gadgets that will be outdated within the year. Most of these purchases are on credit. Then, when a recession hits, most Americans have nothing to fall back on. They live paycheck to paycheck and when that paycheck dries up, as it has for millions of Americans in the last two years, they can’t even afford their basic bills, let alone afford to buy anything new.
In Hong Kong, France and Germany, just like Japan, personal debt is much lower than it is in the US. The recession hit, it hurt for a little while, but nowhere near like it has in the United States. Now, as these countries continue to pull further and further away from recession, it’s likely they’ll leave the US further and further behind. Some signs in the US show the recession might be ending but with unemployment figures still very high and large and small American companies still laying people off, it’s highly unlikely the US will be out of recession any time soon. In fact, according to CNN, most analysts still think it will be 2010 before the United States starts to see any signs of recovery from recession.
About 20 years ago, when I lived in the US, I remember hearing a story on National Public Radio (NPR) about the US economy. An analyst on the show said one thing that would kill the American economy and cause America to fall far behind the rest of the world was massive personal debt, especially debt on credit cards. He predicted that in less than 25 years, unless Americans got a grip on personal spending, the United States would see a massive recession it would have trouble recovering from. Only a couple of decades later, his words have come true.
Japan, meanwhile, looks set to continue its economic recovery into the next quarter and beyond. With a nation of savers who spend within their means, its likely Japan’s recovery will continue while America will continue to splutter along behind.
SOURCES: Bankrate.com – 25 Fascinating Facts About Personal Debt by Paul Bannister and CNN