Hello Easy Money!
I was reminded this morning by the Daily Reckoning of the impact upon individuals of easy money. You may say, "What easy money?" However, one should be aware of the many sources of easy money: (1) Inheritance, (2) Lottery Winnings, (3) Welfare, (4) Low Cost Debt, and (5) Over Abundance of unbacked Paper Currency. You may think of others, but the fundamental concept is that there is little or no cost to the recipient. People tend to value anything, even the dollar, by what it cost them in time and effort. Little cost makes one assign little value. Let's consider the result.
Have you ever looked at a bright shiny new development of subsidized housing? It sparkles and is inviting. Some beneficiaries of such low cost housing are diligent workers who have fallen on hard times. These are hard working individuals who work their way into better jobs and move themselves upward into better housing. However, many are families who are professional subsidy and welfare recipients. These then to occupy more and more of the housing. The cost to them is little to nothing; therefore, they assign no value to the property. Over time, it turns into the slums and ghettos which dot our country.
Many beneficaries of inheritance and lottery winners go on a spending spree which ends only as the funds are exhausted. Others are more frugal, but the temptation is there.
Exactly the same is true with those who have access to minimal cost loans. Since the dollars cost so little, they have little value to the individual and he/she spends on everything available. Even businesses fall into the spending mode. Thus, we have seen that the artificially low interest rates and excessive creation of dollars by the Federal Reserve have given rise to a population of consumers. We buy ever larger homes, the latest technology in electronics, new cars, fancy labeled clothing and accessories, fad toys, vacations, and anything else which suits our fancy.
The attitude is "Live for today and tomorrow will care for itself!" In my opinion, this is a dangerous practice. What about the debt which is now carried by individuals, businesses, and governments? Of course, all of us are counting on paying off the debts with dollars of lesser value than those of today. Governments, with the aid of bankers, are highly skilled in this practice.
Governments ask the bankers to create more unbacked currencies by increasing lending and printing paper currencies. The politicians believe that the governments at all levels can beat the economic realities through this inflation. However, governments eventually have to pay the bankers. The bible warns, "The rich ruleth over the poor, and the borrower is servant to the lender." (Pr. 22:7) Thus, we are warned that the lender rules over the borrower. How true that is? What happens if the debt is not paid? How much flexibility does the borrower have over his actions until the debt is paid? Governments can be found to be greatly influenced by the banks which lend the paper currencies to finance spending.
On the individual and family level, the burden of debt is obvious. We have one of the, perhaps, the lowest ratio of saving to income that exists among the developed nations of the world. Bankruptcies increased to about two million last year alone. This was a year, during which, the economy was reported to be doing quite well. All the while many in government were encouraging the people to spend to keep the economy booming.
This is written to encourage each of you to examine your debt level. Be certain that you can continue to service your debt. Consumer debt (that we incur for non-essentials and consumption) on credit cards and misuse of funds from refinanced homes is the most dangerous type of debt. It tends to grow over time, because many of us make only the minimum payments.
Each of us, regardless of our dreams, advertising, and encouragement from governments
must get off the spending binge. Else, we will find ourselves increasing the ranks of those filing bankruptcy.
Beware of debt!
Best to each, Doug
Have you ever looked at a bright shiny new development of subsidized housing? It sparkles and is inviting. Some beneficiaries of such low cost housing are diligent workers who have fallen on hard times. These are hard working individuals who work their way into better jobs and move themselves upward into better housing. However, many are families who are professional subsidy and welfare recipients. These then to occupy more and more of the housing. The cost to them is little to nothing; therefore, they assign no value to the property. Over time, it turns into the slums and ghettos which dot our country.
Many beneficaries of inheritance and lottery winners go on a spending spree which ends only as the funds are exhausted. Others are more frugal, but the temptation is there.
Exactly the same is true with those who have access to minimal cost loans. Since the dollars cost so little, they have little value to the individual and he/she spends on everything available. Even businesses fall into the spending mode. Thus, we have seen that the artificially low interest rates and excessive creation of dollars by the Federal Reserve have given rise to a population of consumers. We buy ever larger homes, the latest technology in electronics, new cars, fancy labeled clothing and accessories, fad toys, vacations, and anything else which suits our fancy.
The attitude is "Live for today and tomorrow will care for itself!" In my opinion, this is a dangerous practice. What about the debt which is now carried by individuals, businesses, and governments? Of course, all of us are counting on paying off the debts with dollars of lesser value than those of today. Governments, with the aid of bankers, are highly skilled in this practice.
Governments ask the bankers to create more unbacked currencies by increasing lending and printing paper currencies. The politicians believe that the governments at all levels can beat the economic realities through this inflation. However, governments eventually have to pay the bankers. The bible warns, "The rich ruleth over the poor, and the borrower is servant to the lender." (Pr. 22:7) Thus, we are warned that the lender rules over the borrower. How true that is? What happens if the debt is not paid? How much flexibility does the borrower have over his actions until the debt is paid? Governments can be found to be greatly influenced by the banks which lend the paper currencies to finance spending.
On the individual and family level, the burden of debt is obvious. We have one of the, perhaps, the lowest ratio of saving to income that exists among the developed nations of the world. Bankruptcies increased to about two million last year alone. This was a year, during which, the economy was reported to be doing quite well. All the while many in government were encouraging the people to spend to keep the economy booming.
This is written to encourage each of you to examine your debt level. Be certain that you can continue to service your debt. Consumer debt (that we incur for non-essentials and consumption) on credit cards and misuse of funds from refinanced homes is the most dangerous type of debt. It tends to grow over time, because many of us make only the minimum payments.
Each of us, regardless of our dreams, advertising, and encouragement from governments
must get off the spending binge. Else, we will find ourselves increasing the ranks of those filing bankruptcy.
Beware of debt!
Best to each, Doug
posted by Doug @ 9:04 AM
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