Debt is control only when it is collectible. If the debtor has the legal or other means to resist "repayment", debt is meaningless.
I've been thinking of this editorial opening for quite some time. I wanted it to reflect on my stance and pursuit to help Humanity at my own level. Bad economics being a great source of divide, I suddenly recalled the story of two pals of mine, in their late 40s, who might be heading for a divorce as I type this. Three years ago, their goal was to pay back these (damn) credit cards and they fully succeeded. They are not financially secure according to the mainstream standards: they live from paycheck to paycheck, even though being practically debt-free, and have a 401k (which could evaporate at any moment in a stock market crash). However for now is not bad at all considering that 80% of Americans have debts up to their eyeballs -- the U.S Treasury included.
So what happened? Well, at the beginning of the housing boom, they didn't have enough for a down payment and the husband lamented, thinking that he was about to miss the American Dream. There was also lots of peer pressure since he works in an environment of highly paid executives representing the top 15% of the society and of which he doesn't belong to. It soon became an obsession: home ownership would never be for him. He was born a failure. The despair surely got worse when in the midst of the boom-mania, he was strolling down the streets with his wife looking at the new condos being built. Mesmerized and with a sad smile he explained for how much money those apartments were sold or flipped, assessing restlessly the equity lost for not taking part in this mega-speculation that was supposed to be endless.
From the beginning, she didn't buy the exuberance and it turns out that current events prove her right. Today the stories about the housing market are unraveling, although the media are still gravely underreporting the situation. So, every time her husband was hypnotizing himself with ever-increasing home prices, she made a duty to lecture him and email him as many enlightening pundit's views as possible to make her point. Even GE's Immelt declared Housing Great Depression a reality. In despair she then armed herself with the U.S Constitution, which prohibits central banking as drafted by the Framers... The attempts to make her husband come to his senses remained futile. Her 'out of control greed' theory was first ignored then mocked and badly trashed. Remembering dotcom bubble stories, she wondered if the housing-mania was not mind-controlling him in the same way.
The justified gloom and doom data forwarded to him daily got on his nerves. He became irate, accused her of being obsessed with 'an economic end of days'. He used guilt in turn, adding that if they couldn't afford to buy a home, it was because of a lack of income whatsoever. The blame went on and on: instead of studying newspapers data, she should use her energy to come up with real solutions to earn more instead. Feeling rejected and misunderstood, bitterness fed her motivation to make her husband comprehend the dangers of denial.
His obsessions versus hers quickly became a philosophical issue; and this is precisely why they see a counselor today. It is very likely that the housing mania was a mere catalyst after all. Of course, they could have had enough for a down payment if not having maxed out their credit cards in the first place... but it recently surfaced that predatory practices are too pervasive in the 'plastic industry'. Likewise, your life can easily become hell if you are not fully informed. They simply racked up so much credit card debt because companies had raised their debt ceiling systematically over a 5 year-period. To be fair, she remained more or less 3 years without a steady income, but nonetheless this didn't prevent them from changing their spending habits. Until reality hit her like a freight train 5 years ago, they had copycatted the widespread mantra of 'shopping til you drop'.
"When you're in a hole, stop digging." David Walker, former U.S. Comptroller General and star of the documentary, I.O.U.S.A
ps: if you have similar stories to share, I'd be pleased to hear from you.
Greed Run Amok
There are many columnists and bloggers out there doing an excellent job at reporting the real numbers and which guide my rational musings and insights. In this time and place, my task is to connect the dots. So now let's delve into the heart of utterly staggering matters, which, I hope, will be the centerpiece of the next intellectual revolution so desperately needed.
How will it end: with deflation or hyperinflation? Although there are two trains of thoughts debating those different outcomes, for the common man it doesn't really matter anymore. It is going to be wrenching beyond belief. Period. When economic laws are skewed, the rest generally follows. Average people do not know how easy it is to abuse their emotions with fraudulent economics and turn them into puppets at their own expenses. As an example I will cite the inflation quagmire, which shows that middle class income has regressed since the late 70's.
To be more specific, the real median family income more than doubled from the late 1940s to the late ’70s. It has risen less than 25% in the three decades since. People work more and more - for less and less. Meanwhile the political leaders swear in the name of democracy, vow to fight unemployment, protect women's rights and implement social programs for the poor. Alas, it is now proven that numbers speak stronger than words. As you read this, people are barely surviving on credit cards to meet basic daily expenses. This ticking 'Time Bomb' may soon become the ground for a credit card national relief campaign arguing in favor of another government intervention.
"Other sources of money for a lot of Americans are drying up," said Dick Reed, regional counseling manager of Consumer Credit Counseling Service of Greater Atlanta, who sees more clients with mounting credit card debts these days. "Consumers just don't have a place to go to get money. They are digging themselves into a deeper hole not only to pay for normal living expenses, but to make minimum payments on outstanding debt." - CNN/May 9
Yet voters blatantly choose to ignore the warnings... Candidates' Economic Plans Don't Add Up an ABC headline reads. The rampant economic illiteracy took them a step closer to the abyss as the dreadful 'stimulus' check appears to cost more than it's worth. The Economic crisis is ruining people's lives, the media has failed to tell the full story, explains Danny Schechter whose investigation corroborates that of Joseph Mason, an associate professor of finance at Drexel University's LeBow College of Business, who sees more bank failures ahead:
"At this point in the crisis, you can't stop bank failures... You move through the problem. You don't avoid the problem. It's too late to wait and hope that things get better
Greed has indeed run amok at all levels of the global pyramid, hence the trickiness to explain what is really going on. Take the housing madness for example: the buyers would have done everything they could to get a piece of the pie. And this is something brokers grasped quickly. In turn brokers pushed more borrowers to lie (and they are still at it), Lenders were prompted to mislead and ratings Agencies started became paralyzed by the potential economic damages. We may curse white-collar crime as much as we can, but it should be acknowledged that it all starts with the consumers and a 'contagion' that begins with an epidemic of 'Cheap Money'.