Page 225 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

Even as interest rates plunged from the early 1980s through 2020, the
percentage of income going to debt service payments rose. And it skewed
COBACOBA
toward lower-income groups. The share of income going toward debt and
lease payments is just over 8% for the highest income groups—those with

the biggest income gains—but over 21% for those below the 50th percentile.

The difference between this climbing debt and the debt increase that took
place during the 1950s and ’60s is that the recent jump started from a high
base.

Economist Hyman Minsky described the beginning of debt crises: The
moment when people take on more debt than they can service. It’s an ugly,
painful moment. It’s like Wile E. Coyote looking down, realizing he’s
screwed, and falling precipitously.

Which, of course, is what happened in 2008.

9. Once a paradigm is in place it is very hard to turn it around.

A lot of debt was shed after 2008. And then interest rates plunged.
Household debt payments as a percentage of income are now at the lowest
levels in 35 years.

But the response to 2008, necessary as it may have been, perpetuated some
of the trends that got us here.

Quantitative easing both prevented economic collapse and boosted asset
prices, a boon for those who owned them—mostly rich people.

The Fed backstopped corporate debt in 2008. That helped those who owned
that debt—mostly rich people.

Tax cuts over the last 20 years have predominantly gone to those with higher
incomes. People with higher incomes send their kids to the best colleges.
Those kids can go on to earn higher incomes and invest in corporate debt