Debt-Serfdom Is Now The New American Norm

Tuesday, October 18, 2011
By Paul Martin

by Charles Hugh Smith
ZeroHedge.com
10/18/2011

Trapped assets that generate no income streams in the present are not capital; the value of such non-productive assets is illusory. Strip away these trapped assets and the reality is revealed: most American households toil to service their debts.

The typical American household is insolvent: its debts exceed its assets. There is nothing fancy about calculating insolvency: if debts exceed assets, the enterprise is insolvent. By this measure, most American households are insolvent, if their real assets are marked to actual market.

For example:

Auto loan balance: $9,000
Actual market value of auto: $6,000

Credit card balance: $6,000
Street value of stuff purchased with credit card: $300

home mortgage: $250,000
Auction value of house: $200,000

Student loans: $60,000
Market value of education: Not applicable, as it cannot auctioned off or securitized

And so on.

The typical American household is thus in service to its debt, not to its assets, and to the holders of that debt. This is debt-serfdom: serfdom in service to the owners of debt, debt that may well always exceed the value of the household’s assets. This is debt-serfdom for life.

If we look at the American household as an enterprise, then we have to differentiate between unproductive, trapped capital, assets held in a house or retirement account, and productive, free capital which can be moved in and out of productive assets to earn a return which increases free cashflow income in the present.

The Rest…HERE

Leave a Reply