Debt, Destructive Debt

Initial reports are in and this weekend's Black Friday / Thanksgiving spending is up almost 10% over last year's holiday. On the surface this sounds like great news! Perhaps the economy is improving and a recession can be avoided.

Not so fast.

I'm ready to predict that at least 50% of that spending was made by people who are already in debt that they can't handle. Further, another 25% of the spending pushed families that had manageable debt or no debt at all into debt. In other words, virtually none of this consumption was advisable.

Why is debt-spending bad, especially in tough economic times? There are lots of reasons. Carrying a debt erodes or eliminates the ability of an economic unit (person, family or state) to handle crises. By casually increasing debt these people have placed themselves dangerously close to ruin (or bankruptcy). It will only take one piece of bad news to break the proverbial camel's back. A lost job. Heck, even a reduction in hours can spell disaster. A health crises could do it. Debt itself contributes to health problems! Debt means stress, stress leads to disease.

What happens when an economic unit reaches or crosses the breaking point? The typical response it to declare bankruptcy. Bankruptcy is like a financial nuclear bomb strike to the economy. Sure, bankruptcy helps put the ruined economic unit in a position to recover, but every single person or agency that was owed money is forced to take a loss. The hit each takes depends on the size of the economic unit that failed. Those incurred loses can be large enough to lead to them becoming bankrupt themselves.

And therein lies the danger of bankruptcy: it is contagious. Bankruptcies resemble dominoes in that one falling can lead to hundreds (or even millions) of others falling. Bankruptcies are like nuclear reactions, they can achieve 'critical mass' where they become common enough to cause the system to produce an endless chain of bankruptcies. If that ever happened the economy wouldn't just flounder, it would fail outright. With nearly every government in the world (except China's) also carrying significant debt the ability of government to stimulate or rescue the economy is almost nil. The demand on the Welfare System would bankrupt governments. A country to go from being a G7 or G20 nation to resembling a third world nation in short order.

This all becomes possible because individuals cannot or will not behave responsibly. Further, those that choose to behave irresponsibly will not even take ownership of their own behaviour, they will place the blame on others. A refusal to say 'no' to luxuries we can't afford, an unquenchable desire to fulfill 'wants' rather than merely our 'needs' will be our undoing.

What about the banks and other credit-offering agencies? We are addicted to debt and they are our pushers. It's not just an analogy, it's the reality! If there is a record of your existence (like an e-mail address) and they can attach an address to that record they will send you junk mail inviting you to obtain a credit card. Lure them in with small tastes of their drug of choice -- credit. There are family pets with their own credit cards! How were the banks supposed to know that 'Roscoe' was a Dachshund or a Siamese?

Once you have a credit card they will continuously 'reward' you with additional credit. It would be bad enough if they only did this for people who pay off their monthly balances without fail but that isn't enough for them. Giving more credit to someone who has their addiction under control is a blind hope that they will eventually lose control. Banks keep upping the ante for people who constantly carry a balance! What are they thinking!? They're thinking "You've got a bad habit and we can make more money on interest payments by encouraging you to increase your debt load." If you liked smoking weed, try some of this heroin, it's so much better! They are gladly handing a depressed person more and more rope and crossing their fingers that you won't go ahead and hang yourself with it right away. If you do it too quickly, they lose money. However, the vast majority of us take a while before we bite down on the debt cyanide pill which allows the bank to make enough money in the process to justify the loss they must take at the end. We don't go quietly into the dark night, we struggle to make payments as best we can, funneling money to the banks as fast as we can earn it.

I knew that this was coming when the first 'Money Mart'-type payday advance stores opened. They are blatantly charging usury to let you have access to your own money a few days ahead of schedule and stupidly, we are willing lambs led to the slaughter. (It's bad enough that banks service charge us near to death to access our own money without payday advance leeches!) The marketing strategy of sellers is to whip us into a frenzy of consumption. They convince us that we 'need' things that we won't even use once we have them. Buyers remorse is rampant, but good luck returning things. So, in the banks we have drug (credit/debt) pushers on every corner and in the sellers we have unrelenting peer pressure to abuse drugs, i.e. spend without any consideration of our means. So, now we have an entire society addicted to obtaining credit and using every last damned bit of it.

All the while, the government has sat back and 'let the market' decide how things would proceed. Just a small amount of regulation on interest rates for lenders would have curbed this economically destructive industry. A little regulation on what kinds of marketing is and isn't allowed might have helped us retain a modicum of self-control in spending. Instead, we have neither. Marketers can say virtually anything about their products, even blatant lies. The more outrageous the claim, the less likely that a court will find that the marketing crossed the line! Courts have decided that the public should already understand that the claims made for products aren't true so don't need to be protected from the lies. They should expect the lies and act accordingly. Even catering to addictive behaviour in children isn't off limit! Child marketing attacks self-esteem and the brain's pleasure centre, so no wonder kids are the ultimate consumers and want everything. Numerous toys, especially virtual toys/pets, and social networks engage in psychological practices that are so influential that they are known to be manipulative at best, and 'brain washing' at worst, especially for unsophisticated minds -- like those of children. Parents complaints fall on deaf ears. The companies voices (i.e. money) are too loud for parents to be able to sway politicians.

Actually, governments are making things worse. Instead of attacking the real problem hurting the economy they encourage the public to spend. Spending is the traditional way out of a recession. However, historically all the instances of spending out of a recession have entailed families dipping into savings to spend and governments running deficits after having run surpluses. Now, we have families already in debt being encouraged to spend, and the government is limited in how much it can help stimulate the economy through job creation incentives, tax cuts and other services like retraining and welfare because it too is choking on debt! We can't spend our way out of this one.

Europe is having the same problem and is trying the opposite solution, and that is also failing. Greece and Portugal are both experiencing massive unemployment and rapidly shrinking economies. No amount of austerity can combat that kind of financial disaster, in fact, it feeds the problem of shrinking economies and increasing unemployment.

So, if you can't spend your way out and you can't save your way out, what can you do? You can address the real issue affecting economies around the globe. Stop encouraging the rapid concentration of greater and greater amounts of money in fewer and fewer hands. The greater the portion of a nation's wealth that sits in the top 20%/10%/1% personal financial empires the greater the drag on the economy. In that sense, governments are right, spending IS the way out of recessions, but so much surplus money is sitting unspent in the hands of the world's billionaires that the economies are running on fumes! The bigger the fortune, the higher the relative amount of idle money, so is it any wonder that the global economy is dying? With every financial/economic hiccough the rich get richer and the poor get poorer and the middle class gets squeezed farther and farther down the standard of living scale.

The last global financial crisis in 2008 was caused by greed in the banking/financial system. Those companies and their owners (other than the ones that failed) have gotten bigger and wealthier as a result of the crisis. The next crisis is on the doorstep and guess who is driving it...the bloated banks and financial institutions and their obscenely wealthy owners are siphoning money from the middle class and poor at a record-breaking pace and we're letting them. Not only are we letting them, we're choosing to help them fleece us! Credit is a great thing to have when you have no debt. It allows you to weather emergencies. Carrying debt, especially at the all-time high levels carried today, is the single greatest financial emergency on the planet and we're generally ignorant of the fact that our behaviour is not only breaking our backs, but the entire economy's back. And the banks? Well, they're laughing all the way to the bank, of course.

Soon enough, the world will be openly run by corporations. With lobby groups being what they are, corporations pretty much already are, but from the shadows. What governments that remain will be figureheads, puppets. They will rubber stamp the decisions made in the boardrooms powerless to do anything else. Even the greatest nations will be poorer than and beholden to corporations. The United States of Microsoft. Exxon Arabia. The Siemens Economic Union.

There's still time to prevent this dystopic nightmare from happening. but not much. The Occupy Movement is right, and there is a real urgency to it. Economies will grind to a halt as greater and greater proportions of the world's wealth get siphoned into private vaults, where it does nothing. Uncle Scrooge McDuck is happily swimming in his money while the common duck is getting accustomed to malnutrition and hunger. As the money concentrates further, the economy shrinks further still, the number of jobs drops, and thus the cost of labour takes a dive. With so much competition for every available position there will be desperation and people will offer to work for less and less. Unions will be utterly powerless. With so many unemployed and dead broke, demand for just about everything (except food) will bottom out further reducing the size of the work force. The minimum wage will be eradicated. Eventually, all the wealth will be in the hands of 20%/10%/1% of the population with the remaining 80%/90%/99% homeless or on the fast track to ruin. The ultra-wealthy won't be any more motivated to be charitable then than they are now. They'll give whatever they can to reduce their tax burden and not a penny more. Of course by then, they may not even be taxed -- only the poor will be taxed. We'd be back to the feudal system, with people being dragged off to the dungeon for not being able to pay the Lord's taxes. It never mattered if there was a drought and the crops failed leaving the farmer with nothing for himself let alone for the greedy and petty Lord.

Sure, the banks are driving this phenomenon, but there's enough blame to go around. The governments are greasing the gears of the system enabling it to reach record levels. We are just as culpable as we are willingly rushing into the arms of ruin in order to enrich the already wealthy. Just a tiny bit of intelligence, forethought, reasoning and restraint would have prevented this from happening in the first place. If we used a reasonable portion of our brains' potential we would recognize that we are being used and abused by a money-mad system and might even find the strength of will to do something about it! Instead, we dance like puppets on strings throwing our ever-shrinking share of the world's wealth into the hands of those that have more than they can count, or spend, in a lifetime and we're doing it faster and faster all the time! We're in a hurry to realize the plutocratic vision of dying with all the toys and leaving us with none.

Wake up people! Force your government into enacting policy that is sustainable. What they are doing now sure isn't! And Mr. and Mrs. Billionaire, you should wake up too! If you think your lives are going to be comfy and cozy once the majority of the population has nothing -- and therefore nothing to lose -- you're sadly mistaken. Besides, if you're in the lower tier of the ultra-wealthy you'll eventually get sucked into the economic black hole as your more wealthy 'cousins' begin to prey on you once there is nothing left to take from the poor and middle class! And last, but perhaps not least, Mr. & Mrs. Billionaire, if there is an afterlife and you think you're pittance of charity will get you into Heaven, that it somehow absolves you of the sin of grand larceny taken to the ultimate degree -- your fleecing the world of its wealth for your own personal fortune -- you are sadly mistaken. You'll spend eternity trying to get used to the smell of brimstone and the pain of unending torture. I guarantee it. You have to decide whether it is worth it. Clearly, you've already decided. You have chosen...poorly.