We have created a culture where many Americans don’t think they have to live within their means. So, if they “need” something,” they buy it on credit. More new stuff is acquired even if they must rent a storage space for the old stuff. If people lose their jobs, they try to maintain their old level of consumption. In times past, people in a financial jam would have gone to parents and family, and the parents would tell them “You don’t need that if you are using my money.” But, with a credit, debit, or pay-day loan, they don’t have to face anyone saying no.
There are twice as many pay-day loan offices than there are Starbucks, and people may pay over 400% interest for a two week loan. Overdraft protection on a debit card is not called a loan but euphemistically termed a “courtesy” by the banks as they collect enormous fees. Some people will take money, if available, no matter their chance of repayment. And financial organizations take advantage of this. As one wag put it, there are two words Americans love to see—“Free” and “All you can eat.”
Subscribe to:
Post Comments (Atom)
1 comment:
We created a culture where people came to expect a rising standard of living. And we encouraged people to spend. Then we cut the quantity of money in circulation (M1) and cut it, and cut it. And policy encouraged saving. And policy encouraged lending. And policy encouraged borrowing. And credit use grew...
And the embedded cost of interest in the economy grew. (The dollar-value of credit transactions increased as a portion of the dollar-value of all transactions.) And the factor-cost of money increased, relative to wages and profits and rents. And inflation became cost-push...
Everybody thinks we have too much debt. Central banks must think we have too little M1 money, because they print more. And we have the quantitative easing...
But nobody looks at the level of debt relative to the quantity of M1 money. And that graph tells a story...
People act like they "don’t think they have to live within their means" because of 40 years of bad policy. It's time to change our policy.
Post a Comment