Our Problem is Household Debt, Not Government Debt

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Here’s an interesting chart via Paul Krugman. Atif Mian and Amir Sufi compared the strength of economic recovery on a county-by-county basis, and what they found was that virtually all of the continuing weakness is concentrated in areas where household debt is high. Consumption of durable goods is low, residential investment is low, and employment is low. Their conclusion:

Overall, the county evidence strongly suggests that credit demand is weak because of an overleveraged household sector….The evidence is [] consistent with the view that problems related to household balance sheets and house prices are the primary culprits of the weak economic recovery. King (1994) provides a detailed discussion of how differences in the marginal propensity to consume between borrowing and lending households can generate an aggregate downturn in an economy with high household leverage….Our view is that the depth and length of the current recession relative to previous recessions is closely linked to the tremendous rise in household debt that preceded it.

This isn’t an easy problem to solve, but a couple of things leap out. First, high household debt is strongly correlated with underwater mortgages, and this could be partly addressed by a more aggressive program of loan modifications to replace the hapless HAMP program of 2009. Second, temporary tax cuts that put money in people’s pockets are useful even if the money doesn’t get spent. We won’t get a full recovery until debt levels get back to normal, and the faster that happens the better. If tax rebates get used to pay off credit cards or mortgages, that’s fine.

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WE'LL BE BLUNT

It is astonishingly hard keeping a newsroom afloat these days, and we need to raise $253,000 in online donations quickly, by October 7.

The short of it: Last year, we had to cut $1 million from our budget so we could have any chance of breaking even by the time our fiscal year ended in June. And despite a huge rally from so many of you leading up to the deadline, we still came up a bit short on the whole. We can’t let that happen again. We have no wiggle room to begin with, and now we have a hole to dig out of.

Readers also told us to just give it to you straight when we need to ask for your support, and seeing how matter-of-factly explaining our inner workings, our challenges and finances, can bring more of you in has been a real silver lining. So our online membership lead, Brian, lays it all out for you in his personal, insider account (that literally puts his skin in the game!) of how urgent things are right now.

The upshot: Being able to rally $253,000 in donations over these next few weeks is vitally important simply because it is the number that keeps us right on track, helping make sure we don't end up with a bigger gap than can be filled again, helping us avoid any significant (and knowable) cash-flow crunches for now. We used to be more nonchalant about coming up short this time of year, thinking we can make it by the time June rolls around. Not anymore.

Because the in-depth journalism on underreported beats and unique perspectives on the daily news you turn to Mother Jones for is only possible because readers fund us. Corporations and powerful people with deep pockets will never sustain the type of journalism we exist to do. The only investors who won’t let independent, investigative journalism down are the people who actually care about its future—you.

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Getting just 10 percent of the people who care enough about our work to be reading this blurb to part with a few bucks would be utterly transformative for us, and that's very much what we need to keep charging hard in this financially uncertain, high-stakes year.

If you can right now, please support the journalism you get from Mother Jones with a donation at whatever amount works for you. And please do it now, before you move on to whatever you're about to do next and think maybe you'll get to it later, because every gift matters and we really need to see a strong response if we're going to raise the $253,000 we need in less than three weeks.

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