In the days of handsome bearded cavemen and their beautiful barefoot significant others, there were no marriage licenses, no credit cards, and no banks ready to finance their wildest dreams. Life was much simpler then, but far from “easy.” A human had to hunt for food out in the wild because there were no grocery stores or farmers markets. In the caves there were no refrigerators to store left overs, and no electric ranges for cooking. In fact matches were not yet invented.
Since stylish clothes were not available, most folks wore nothing. Modern Home Depots weren’t necessary because everyone was a nomad including the few children who survived infancy. Pets weren’t being petted, and domestic animals were still undomesticated. There was no indoor plumbing and running water, hot or cold, and no out-houses with a generous supply of mail order catalogues to be used as toilet paper.
Back in those days when cave dwellers ate raw meat and drank warm blood from slain animals, the first thing these intelligent bipeds learned was that you couldn’t get blood from a stone. This valuable lesson has been forgotten by sophisticated modern humans during the past 100 years. Optimistic lenders believe that creative inventors will eventually patent the technology for extracting blood from stones. That illusory product could then be sold to suckers for money to pay long suffering creditors.
But the suckers are those greedy entrepreneurs who will loan money or extend credit to ordinary shoppers instead or demanding “cash on the barrel head.” The “cash advance” business is much more of a gamble than taking out your bow and arrow and tomahawk to hunt for unsuspecting wild life. Gambling has become one of the most popular games in town, and many pigeons are ready to be plucked.
Individual promises to give blood or to toil for money mean nothing since debtor prisons were closed. Foreclosure and bankruptcy are a welcome solution to debt problems that lawyers can easily handle for an up front fee. A credit rating is as reliable as the Moody’s or Standard and Poor rating of a stock and bond. Because of the generosity of credit card companies, there are fewer beggars on the street looking hungry and unkempt. The poor and unemployed have no recollection about the hunting and gathering techniques of their distant forefathers.
While we are in the throes of the present recession, the Federal Reserve is loaning banks money at interest rates bank customers will never be offered. The interest paid on saving accounts is negligible. So, many humans have gone back to the days of the troglodytes. If you don’t have a decent paying job, some savings, or a source of credit, you had better take a class in hunting for food or stealing. (It was reported this week that in my state there were 5 humans seeking employment for every job being offered. I won’t vouch for the reliability of those statistics, since all statistics are gathered for the use of wannabe politicians and curious marketeers.)
What has evolved in sophisticated modern human societies is the belief that debtors will continue to be employed and honor their financial obligations. A great majority of borrowers fully intend to repay their debts, but unforeseen things happen to them like whole factories being moved overseas because labor is much cheaper there. Some employees get sick or injured, some fail to be “all they can be” at work, and some get involved in drugs, alcohol, and expensive hobbies like gambling and buying lottery tickets.
Yet despite the collection problems we have and the ones anticipated, consumers are being encouraged by the leaders of our government to spend money that they don’t have to spend. The eternal optimism of some bloodthirsty creditors hoping that debtors whose circulation of blood has dried up will eventually eke out some fluid cannot be squelched! John Maynard Keynes’ economic theory about deficit government spending in times of recession has a major flaw.
That flaw is incorporated in any credit philosophy founded on borrowing from uncertain future earnings. In our polarized democracy, borrowing from the future to buy things to be consumed today is foolhardy! Under the current circumstances, increasing government debt is expected and rationalized as being the least of the bad economic options.
Fifty odd years ago I was told in Economics 101 that income was spent or saved, and the savings of private individuals were put in Savings and Loan institutions to finance mortgage loans. Collateral in the form of a house was expected to be a solid guarantee for a loan because down payments were substantial. In addition, banks were required to have significant reserves for bad debts backed by capital from investors. How times have changed!
Modern cavemen and women “own” homes and high-powered transportation; they have gourmet tastes in food and clothes; and they indulge themselves in expensive amusements and vacations. How many of these are completely paid for? How many are paid for with credit or borrowing from future income? How many household items would be considered essential if the consumer had to pay cash for whatever he or she bought? How would today’s family deal with “delayed gratification” in a society where citizens want more entitlements from their governments every year without being able to pay for what is already promised them?
The attitude of politicians that employed consumers should be spending more to replace the lack of consumption of the 10% unemployed is ludicrous!
Credit card companies increasing interest rates and late payment fees won’t get the blood flowing in the “stones” who are behind in making past due payments. The debtors who are trapped with large obligations for whatever reason are learning the caveman’s lesson at last. Blood won’t begin to flow any time soon in the veins of many debtors.
In the long run, the most unrelliable debtor will be the federal government, and the most abused citizen will be a taxpayer. Fees for government services and taxes will be increased. Those services will be curtailed or rationed, and the quality of service will deteriorate. You don’t have to be a cynic to observe what has already begun to happen as a consequence of reduced workdays per month of government staffs in California.
Governments have borrowed significantly from the future, and now they will begin the torturous activity of uncovering ways to pay for the government services already rendered and the huge amount of interest on the debt outstanding. Borrowers who work for a government will be facing reduced income and difficulty in refinancing their debt. The cash customer will be offered discounts for prompt payment instead of extended terms.
Meanwhile, those old tight-wad seniors who are used to paying cash for whatever they purchase are unhappy with the ridiculously low interest rates being paid for savings. They remember waiting in line for simple things that weren’t available during World War II. They haven’t bought the latest cell phone/camera, the fanciest imported SUV, and the wide screen high definition TV. If they are like me, whatever they did acquire was not bought with a maxed-out credit card!