Great American Dumb Ideas: Debt-life

Money may be the root of all evil, but lack of it isn't far behind, and massive debt can be a living hell for many people.


In Shakespeare's Hamlet, Lord Polonius says:

Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry

However, Hamlet refers to Polonius as a "tedious old fool." Good advice is again wasted on a troubled personality. America is a troubled nation; it is biggest debtor among nations with a staggering national debt.

Our national debt has world-wide impact, and other nations are being hurt by it. Some of them bought part of the recent American housing bubble. In the ten years before the recent collapse in the housing market in the United States, home and land prices shot up, and questionable mortgages were bundled together and sold to banks around the world.

Land and home ownership were once privileges of the very rich. In the early part of the Twentieth Century, homes cost only a few thousand dollars, but loans were hard to get. You went to a bank, hat in hand, and brought letters of reference. You also needed a rather large down payment.

After World War II, military veterans could buy a home in the United States with no down payment; their loans were guaranteed by the government, and it all worked very well. The government also provided tax benefits for home ownership. More and more people wanted bigger and newer homes. New kinds of loans were invented and aggressively marketed in the United States. People could now buy a home with a balloon mortgage paying nothing down and with very low monthly payments in the hopes that when the monthly payments increased in three or so years they could pay the new amount, refinance, or sell the house at an inflated price.

Sooner or later all bubbles built on foolish greed burst. Many thousands who bought homes during the bubble, homes at inflated prices, are now experiencing the loss of the home and any equity they may have had in it as their payments suddenly increase.

In the early part of the Twentieth Century, if you wanted a car, you paid cash for it. By mid century, cars were still relatively cheap. In 1950 you could buy a new car for three or four thousand dollars, and you could finance it over three years. Gradually, as prices increased, the length of auto loans increased to five and even six years. Auto makers could make money on the sale and on financing the sale.

During the 1950s the American love affair with the credit card began. If you had a large home and a fine car - bought on credit - you could fill your life with more things bought on a credit card. Originating student loans also became a major industry. In many American homes today, the first four debt obligations faced every month are the mortgage payment, the auto loan, a credit card balance, and an old student loan. If a medical crisis comes up, it could be time to declare bankruptcy, and medical expenses are the major cause of bankruptcy in America today.

As a result of their debt load, about forty-three percent of families have a negative savings rate; that is, they spend more each month than their income.

Only about forty percent of credit card holders can pay off their balance month-to-month. Many pay only the minimum payment. This means that, over the months, they pay far more for most purchases that the original ticket price. Average households carry some $8,000 in credit card debt.

With that thirty year home mortgagee, the buyer may end up paying up to twice the purchase price because of interest over the life of the loan. Debt ends up being the most expensive habit we have.

The buying public has been trained to look only at a monthly payment, and most people have no idea of the final total cost of what they buy when interest is factored in.


The appeal of instant credit in buying every necessity of life is immediacy. A "Get it now and pay later" mentality is learned and passed from generation to generation. American television advertisers pound away hour after hour selling homes, mortgages, payday loans, furniture, appliances, automobiles - you name it and you can buy it on credit. Missing completely is any appeal to prudence. No banks try to sell savings accounts. Most Americans never dream of starting a retirement account; they probably couldn't afford it if they wanted one.

Easy credit is the life blood of a consumer based economy, and foreign investors seem eager to buy up the loans foolish Americans assume.

President Ronald Reagan hated government social programs. In fact, he hated government and wanted to restrict its role to basics such as the military and defense. President George W. Bush took this thinking to impossible limits. The Reagan-Bush conspiracy over the years has been to bankrupt government so that spending on social welfare programs would be impossible. There would be nothing left for health care, veterans, housing for the poor, public mental health, industrial regulation, child welfare, early education, or any of the many government services we depend on every day.

Our foolish and unnecessary occupation of Iraq has pushed the national debt to almost ten trillion dollars. The Bush presidency gave us debt, war, economic depression, distrust of science, job losses, inflation, and a lower standard of living in the United States. The middle class is in serious trouble.

When the United States government cannot pay its debts, when it has sold most of it assets and debt obligations to foreign investors, history may then repeat itself. This would be in the form of a radical swing to the political left, perhaps by election, but possibly by other means. People eventually realize their government is corrupt and evil, that the government has no interest in serving their needs. In the process of reforming government, many assets would be nationalized, and here is where foreign investor can get badly hurt. If we simply confiscate what we sold to outside interests, they lose and must take whatever payment we give.

Along with national bankruptcy, the Reagan-Bush conspiracy loves lower wages and lower benefits for workers. For one thing, most of the good jobs people used to depend on have been exported overseas in the corporate passion for cheap labor. So, the American middle class is faced with crushing personal debt along with a huge national debt. A desperate person facing personal bankruptcy will work for any wage and take more than one low-paying job to make ends meet. Forcing people into bankruptcy is one more tactic in the search for cheap labor at home.


The price we pay for all this debt is a growing economic lower class, reduced living standards, a lack of good health care, no fall-back programs to assist the needy, and a small but incredibly wealthy controlling upper class. In other words, the United States is well on the road to becoming what we used to call a banana republic. We are becoming a land of poor people ruled by wealthy corporate despots; i.e., a fascist state.

Longer term, the price we and our foreign investors will pay is enormous. A real democracy is relatively easy to overthrow, but a dictatorship almost never ends without blood shed.


Refusing to lend America any more money might be a first step for non-Americans. China, trusting and naive as it is, regularly buys our government bonds. Look out, China. You could be a big loser. If you are an American, maybe gold stashed away would be great idea, although the cash to buy gold can be scarce.

If you have cash or can still get credit, you can make money by buying up distressed homes and merchandise to sell for a little profit. Credit counseling services are being heavily advertised in the United States, so if you don't have any debt you may have some advice to offer others. Maybe you could buy a loan office; there used to be many small loan offices and pawn shops in neighborhoods before banks started issuing credit cards.


Is there a better idea than spending what you don't have until you go bankrupt? That doesn't take a lot of thinking. In the good old days you ate rice and beans to avoid debt. Debt was looked down upon. Saving was next to godliness. Impulse control and self-denial would be useful tools, but you will find few allies in government or business to help learn these skills. History will run its course, but the United States is becoming a rogue debtor nation, a problem for the world as much as for itself.

The growing American debt crises cannot end happily.