Lets agree on a working definition of terms....

The questions that i asked myself before i started doing research on the twin problems are as follows:

1. What exactly do we mean by consumer debt?
2. What is global warming and climate change?
3. Why are they considered twin global crises?

First, let us look at the definition of consumer debt.

InvestorWords.com came out with a definition of consumer debt as debt that has been incurred primarily for the purchase of consumer goods and therefore on which interest payments are not deductible (unlike mortgage debt).

Callcredit.com in UK came out with another definition of consumer debt as debt incurred for intangible investments, e.g. car loans, credit card debt and loans made by family members.

Another similar definition is there from Wikipedia.org:

“Consumer debt is consumer credit which is outstanding. In macroeconomic terms, it is debt which is used to fund consumption rather than investments.

The most common form of consumer debt is credit card debt, pay day loans, and other consumer finance, which are often at higher interest rates than long term secured loans, such as mortgages.”

For our own purpose, I would like to use the definition from Wiki which defines as debt used to fund consumption rather than investments. This definition fits well with my earlier contention that consumers are actually being enticed by creditors to use credit cards to increase consumption – this is public knowledge anyway.

Credit cards and personal loans, in effect, are themselves a commodity and everyday we are bombarded by advertisements from TV, billboards, Internet, and bus adz persuading consumers to avail and sign-up for credit card in fact they are almost giving away this type of commodity nowadays.

Looking at it from a different lens credit card is like any other commercial product and as such, creditors have a social and moral responsibility to educate the consumers of its use and possible misuse just like educating the public about the dangers of cigarettes, alcohol and drugs abuse.

Recently, major newspapers in US came out with stories about subprime lending.In fact this is a major concern in US economy today.

Subprime lending [Wikipedia] also called B-paper, near-prime, or second chance lending, is a practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. The phrase also refers to paper taken on property that cannot be sold on the primary market. Subprime lending is risky for both lenders and borrowers due to the combination of high interest rates, poor credit history, and adverse financial situations usually associated with subprime applicants.

Subprime lending encompasses credit cards, subprime mortgages, car loans among others.

US is now in the edge of recession because of credit crisis. I will not be surprise when one day we will hear the same sad story in UK, Australia, Singapore, Canada, and other major cities around the world. This is globalization of credit crisis. A pattern of overconsumption using borrowed money.


What is global warming and climate change?

Global warming refers to the increase in the average temperature of the Earth’s near-surface air and oceans in recent decades and its projected continuation. The global average air temperature near the Earth’s surface rose 0.74 ± 0.18 0C during the last 100 years (source: Wikipedia).

Climate change, on the other hand, refers to the variation in the Earth’s global climate or in regional climates over time. It describes changes in the variability or average state of the atmosphere over time scales ranging from decades to millions of years. (Source: Wikipedia ).

According to the Natural Resources Defense Council, global warming is caused by carbon dioxide and other air pollution that is collecting in the atmosphere like a thickening blanket, trapping the sun’s heat and causing the planet to warm up. Coal-burning power plants are the largest U.S. source of carbon dioxide pollution – they produce 2.5 billion tons every year. Automobiles, the second largest source, create nearly 1.5 billion tons of CO2 annually.

The effects of climate change includes rising sea levels, forest fires, glacier retreat, altered patterns of agriculture which has impact on food production and distribution, extreme weather events such as Katrina and the tsunami, and the expansion of tropical diseases.

Addressing this complex issue of global warming and climate change requires careful consideration of its economic as well as political implications. Is the world prepared to sacrifice the wealth of nations and the ambition to conquer the space in exchange for a reduction in carbon dioxide emission?

If ever there is any serious effort put into developing alternative solutions it has to be in a way that will not drastically cause the economy to collapse.

Probably the best way to solve the problem is to find alternative economic or human activities that do not depend on fossil fuels and when that matures into an industry or so, we can slowly move away from the traditional fossil-fuel dependent activities. How long it will take, nobody knows, one thing is sure of, oil is no longer plentiful, China is now consuming oil more than what is being produced every day by OPEC.

The middle class, the work force who are well educated and the ones that really made it happen to increase the wealth of nations plays a significant role in addressing the crises. Like the owners and investors in the credit card industry, the middle class workers have the social and moral responsibility to help reverse the trend of global warming and climate change (globally and exponentially) and at the same time help themselves get rid of the episodic cycle of credit card debts.

How? Good question, I don’t have the answers yet. I can help facilitate the thinking process through open dialogue and collaboration either via physical or virtual channels. There is hope in the middle of the pyramid, we need change and the first step in the process is to change the perception of the reality of our situation and accept that we are in deep deep trouble as a human race. If we have a dream, we don’t sleep on our dream; we chase it and make it happen. And one of this dream is to become debt free.

Why are they considered twin global crises?

They are twin tower crises because both problems surfaced at the same time in the same year and both of them are adverse effects of globalization. Both problems feed on each other in a morbid chain of causal connection, and the solution to consumer debt may turn out to be a solution to global warming.

Why consumer debt is global problem? Consider the following facts:

BBC.com.uk came out with an article published on 13 September 2007 entitled “Chancellor warns on consumer debt”. Chancellor Alistair Darling has urged Britain’s banks to take a more cautious approach to lending, and also added that banks themselves may bear some of the responsibility for people getting into problems with debt they cannot handle.

Ben Woolsey’s article entitled “Credit Card Industry Facts and Personal Debt Statistics (2006-2007)” published in CreditCards.com stated that the total US consumer debt reached US$2.46 Trillion in June 2007, up from US$2.398 Trillion at the end of 2006 (Source: Federal Reserve).

There is another story from Frank Walker entitled “Card debt hits $41bn as banks lift rates” of Sydney Morning Herald at www.smh.com.au published in September 23, 2007 and I would like to quote his article en toto:

CREDIT card debt has reached record levels with more Australians using cards to meet mortgage payments.

And in the past month, several banks have pushed up card interest rates way beyond official Reserve Bank increases.

Interest rates on some cards went up by as much as one percentage point when the Reserve Bank increased official rates by only 0.25 percentage points.

Australians owe a record $41.02 billion on credit cards. For the first time the average debt on a credit card account has passed $3000.

A near record total of $1.08 billion was borrowed on cash advances in July. A record $16.4 billion purchases were put on credit cards, an average of $1197 per card.

Interest was levied on $30 billion in unpaid credit card bills. Credit card debt has increased by $10 billion in a little over two years.

Despite the increasing level of credit card debt, banks are enticing people even more.

The total amount of available credit pushed out to a record $110 billion in July as banks increased credit card limits, now an average of $8000 per account.

Financial experts are predicting the average credit card interest rate of 16 percent will increase by two to three percentage points over the next 18 months, pushing rates on low-interest cards up to 13percent and top rates to 22percent.

"People are being sucked in by low-interest credit cards and then being squeezed dry by the banks," Credit Line financial counsellor Wendy Luckett said. "I have been doing this for 17 years and it is the worst I have ever seen."

She said banks were less willing to negotiate with people trying get out of overwhelming credit card debt.

In March 31, 2005, Gary North wrote an article entitled “Consumer Debt: Not an American Monopoly” published at LewRockwell.com:

Consumers have bid up the prices of goods with fiat money. Then they go into further debt to buy more of these goodies. This is ratchet phenomenon. The restraining factor is upward interest rates. This process has begun in the short-term debt markets in the United States, but it has not yet affected consumers’ desire to buy more goodies by going into more debt.

The decision of millions of consumers, all over the world, to raise their level of debt has created what the Griffiths Committee calls time-bomb conditions….

Some finance experts are warning, Canadians must wean themselves off debt otherwise they face a major shock if interest rates rise. “It could be catastrophic in terms of the whole economy, “ says financial counselor Allen MacLord. Interest rates have been quite low in Canada for the past several years.

But Canadian pay cheques have grown very slowly. To prop up their standard of living, many Canadians have resorted to cheap credit and stopped saving money. Lines of credit have grown at record pace in Canada, up 30 percent in 2004 alone.

Holly McIntosh and Frank Lestage’s bank offered them a line of credit a few years ago. “They just give you money and people spend and spend, “ Lestage said. “It doesn’t take long to get it under control, but you have to realize what you’re doing and that it takes a while. You have to get in trouble to realize what’s going on.“

“Consumers worldwide are being lured into more and more debt. They will have to reduce spending. This has not happened yet. But as the FED tightens money, allowing short-term demand for loans to push up rates, the traditional response is a falling stock market.” Gary concludes.

This is another interesting and thought provoking article by former Governor Mario Cuomo and I would like to quote him in part to stress the fact that America the “World’s Reigning Empire”, more than any other nations of the Earth, is in huge consumer debt.

“We need to start a new era of opportunity in America particularly for the middle class and poorer population, going back to the kind of enlightened ideas that spurred our progress in the past by uniting us instead of stalling progress by a return to our first century elitism. The failure to do so has been particularly apparent in the first years of this 21st century. Only seven years ago it appeared that we had the wherewithal to correct major problems and to move boldly up the ladder to a richer, stronger and more inclusive union. When George W. Bush was elected in 2000 we had just completed eight years of economic growth, the four best years in market history, the creation of 22,000,000 new jobs, a balanced budget, a potential $5.4 trillion surplus, an ascendant middle class and a shrinking poor population. All of that progress has been reversed. Job creation is weaker; we have record setting deficits, a growing poor population and a middle class that is sliding backwards…although we do have more millionaires and billionaires than ever.

Measured by traditional econometrics, the current economy is said to be “growing.” That’s good; it means there is increasing production and distribution of goods and services and consumption of them at a profit that benefits owners of businesses and shareholders. What those econometrics do not tell us however, is whether the jobs that are created are here or overseas and how much most Americans are benefited as a result of our growing economy. In fact, it is an economy that has been wonderfully rewarding for high level corporate executives and big stockholders but not for most other Americans. If consumerism is high it is because people are spending more than they earn: they have a negative savings rate and are increasing their debt dangerously.”


All the above literatures are lifted from the articles available in the Internet. Countries like Japan, Singapore, South Korea, Taiwan, and the third worlds are definitely not spared from the specter of consumer debt crisis. It is just that the information from the Internet is not openly available.

Consumer debt is indeed a global menace and because the problem is inherently a personal problem, very few people are willing to come forward and discuss their problem openly. Except the credit counseling agencies where information are freely available in the Internet, support groups and social network groups seldom exist.

I hope one day, people who are severely affected will work together on a common solution communicating globally using tools available in the internet.