The average consumer may feel far removed from the heated debates on Capitol Hill concerning the $14.3 trillion debt ceiling, which the nation could crash into next week. But the truth is, American households are dealing with plenty of their own red ink, and the debt issues that lawmakers must solve to get the nation back on track are similar to those facing consumers.
According to Federal Reserve data, total household debt in the nation at the end of 2010 amounted to about $13.4 trillion, which means consumers owe almost as much as the federal government.
"The conclusion to be drawn is that the government, as well as the U.S. population, is addicted to debt," said Eleanor Blayney, a consumer advocate for the Certified Financial Planner Board of Standards in Washington, D.C.
The federal debt ceiling is best compared to a consumer credit card limit. Congress has authorized the government to spend over and above the credit limit, which is the same as a consumer who spends now and worries about the bill later.
But when it comes to accumulating and paying off debt, consumers face challenges that can't be compared to the government.
Credit card companies and other lenders are not inclined to solve consumer overspending by raising the credit limit. While some card issuers may raise limits in some cases for their best customers, most will simply cancel the card or close the account and demand full payment.
According to the consumer website Creditcards.com, average credit card debt per household with credit card debt in the United States is $14,687. Meanwhile, trillions of dollars in household wealth was wiped out during the financial crisis of 2008.
The Federal Reserve earlier this year conducted a survey of U.S. households that showed the median net worth of households fell from $125,000 in 2007 to $96,000 in 2009.
"The federal government isn't in hock to MasterCard -- rather, to the millions of individuals, pension funds and foreign central banks who have loaned us money," said Terry Connelly, dean emeritus of the Ageno School of Business at Golden Gate University in San Francisco.
The enforcers of the nation's credit limit are the rating agencies that demand that we raise our debt limit.
"But they want a cut in our spending pattern along with it or they will downgrade our credit rating -- just like a consumer will get his credit score downgraded if he or she gets in trouble with MasterCard for overspending the credit limit," Connelly said.
"Both consumer and government debt are a byproduct of many years of bad financial habits and easy credit," said Greg McBride, a senior analyst for Bankrate, a leading online personal finance website based in North Palm Beach, Fla.
"It caught up with households first. Over the last several years, many households have had to make some difficult decisions.
"They've had to cut spending, take on second jobs and scale back their lifestyles. We're at a point where Uncle Sam needs to do the same, but (lawmakers) can't seem to see eye-to-eye."
Steve Smith, a portfolio manager for Covestor in southeastern Pennsylvania, said consumer debt had declined gradually over the last three years, but that the federal debt exploded by about $1.5 trillion in each of those three years.
Stimulus funding and bailouts meant to infuse money into the flailing economy and stave off an even deeper recession were a part of that, although the politicians continue to argue about the value of those.
"The consumer is already ahead of the government in trying to end its addiction to debt by not borrowing as much as they used to," Smith said. "But while consumer debt is going down, the federal debt is continuing to march upward."