We are in the middle of a deflating credit bubble. Easy money in the form of easy credit created a condition where neither individuals and families nor government policy makers had to make choices. With enough credit you could have the new kitchen with the marble counters, the more expensive car, and the vacation, without sacrificing the darlings’ college fund…. which you could still get someone else to pay for if you were lucky enough to live in a state like Georgia with a lottery to secure your children’s future.
The government could fight an expensive war, fund unnecessary and expensive subsidies for farmers, pay for an expensive prescription drug benefit, and still ignore the ballooning liabilities of Social Security and Medicare. And this was with the Republicans in office.
We all have to say no to worthwhile choices we can not afford. Politician or parent, we make choices. We can accomplish just about anything, but we can not accomplish everything – at least not at once.
This “have it all” perversion in our culture has permeated our homes and our seats of government. When you reach the point where you are borrowing on one credit card to pay off the debts of another, you pretty much know the game is nearly over.
We have to return to the point where we live within our means. Growth in the money supply that outstrips our growth in productivity is not sustainable. It is considered sane for a short period to soften the blow from shocks such as 9/11 or the current meltdown, but if we are unable to make choices then there will seem to be an endless sequence of urgencies that will prevent us ever getting back on track.
At a time when we need to be borrowing less, both at home and in DC, our solution seems to be to encourage even more credit and borrowing. We are criticizing banks for not lending more money when that was the crux of our problem to begin with. We are now speaking loudly and publicly to get better terms for credit cards. During her campaign Hillary Clinton argued for directing the March 2008 stimulus payment to the poor people because they would spend it, whereas the wealthier citizens would just ‘save’ it or reduce debt.
Well that is largely the reason so many of them are poor to begin with.
But here are a few hard truths about debt.
When you are in debt your life is not your own. You are working to pay financial institutions for your house, your cars, and your business. In business half the game is just staying in the game. In a world filled with random and largely unpredictable events too much debt at the wrong time can take you out of the game just when opportunities to acquire assets and business on the cheap are the greatest.
Debt is addictive. Our whole economy is based on credit and deflating this credit bubble will have serious consequences and may even delay recovery. Yet attempts to reinflate this credit balloon will only shift the pain into future years, and make it worse then. But the inability to take our medicine now will only increase the dosage later, if medicine is even an option.
Economic observers have noted that “nobody wants sound money.” Sound money is a by-product of living within your means which requires those annoying choices that adults used to be required to make.
‘Living within our means’ is the modern expression of the self reliance that used to be a universal American value before being a community organizer became a qualification to be president, and before it took a village to run a household.
I never see ‘community interests’ used as a motive for fiscal prudence; it is more commonly used to justify more expenses that we can not afford. It becomes another reason not to have to make choices.
John Kennedy’s most memorable words were “Ask not what your country can do for you, but what you can do for your country.”
Forty Five years later the best thing you can do is to live within your means and then require that your elected leaders do the same.