Fix the Debt

We're Worried About the Wrong Debt Crisis

The Washington Post's Zachary Goldfarb writes that the real debt crisis hurting America is that of underwater mortgages putting a drag on American growth:

The authors found that being underwater makes a big difference. As the chart below shows, Zip codes with fewer than 15 percent of homeowners only cut back only a little – spending only half a cent less for every dollar their home fell in value. But in Zip codes where more than 50 percent of homeowners were underwater, borrowers cut back five times as much – spending 2.5 cents less on car purchases for each dollar of reduced housing wealth.

[Chart: UW= percentages of homeowners with underwater mortgages, meaning they owe more on the note than the home is worth. As you can see, the more homeowners in this situation, the more they will cut back on discretionary spending.]

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Justin Green

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