Living on Debt Gives Way to Fiscal Prudence

by: Tom Evslin November 26, 2008    

Tom Evslin

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The newest push-on-a-string plan from Treasury Secretary Paulson is to force more federal money into consumer credit. The idea is that we can then max out our credit cards to new limits, buy houses and cars with too little down, and finance too much of too-inflated college bills. Presto, sales go up, housing prices become absurd again, cars roll off dealer lots and… and we can all get back to the good old days when the banks that lent us all this money could flourish.

What if we don't want to be in debt during deflationary time? What if we don't want to pay 18% interest on revolving charge accounts any more than we want to buy $4/gallon gas? What if we buy houses for reasonable prices with reasonable down payments so we can have smaller mortgages? What if we've realized that "zero percent financing" on a car just means that the sticker price has been inflated? What if we borrow a smaller percentage of college costs and shop for lower tuitions?

I don't want to be un-American or anything but we'll all be stronger if we have more savings and less debt – all except the debt merchants, of course.

There was a nice story on local TV station WCAX Tuesday night about local stores reinstating layaway plans to help people budget for Christmas gifts. Wal-Mart (WMT) says not necessary; people will always use plastic. We'll see.

There's an anguished story in Wednesday's New York Times which begins: "Come Christmas, McKenna Hunt, a gregarious little girl from Safety Harbor, Fla., will receive the play kitchen and the Elmo doll she wants. But her mother, Kristen Hunt, will go without the designer jeans she covets this season." Maybe Kristen Hunt is smarter than both the Times and Treasury Secretary Paulson.

There's no question that the sudden switch from an over-indebted society to a fiscally responsible one is causing a painful dislocation which will probably get worse before it gets better. That's why we do need a jobs program building infrastructure which is properly financed with debt; that's why we do need extended unemployment insurance and a safety net. But what we don't need is to recreate the excesses of the past and to create so many business opportunities for merchants of debt.

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This article has 5 comments:

  •  
    Nov 26 02:10 PM
    Spot on and BTW,college costs can be negotiated,especially if you are paying cash...I was able to get my son a engineering degree at a major university with only $9000 of student loan debt.Most of his friends have 40-60k of debt...they are starting behind the eightball...
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  •  
    Nov 26 06:20 PM
    The problem is that McKenna Hunt's Tickle Me Elmo and play kitchen were likely made in China. No multiplier effect. That, and the trendy, overused name McKenna.
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  •  
    Nov 26 11:34 PM
    The obvious fallacy is that all aspects of society and economy have to work off debt, except for the federal gov. All bubbles have to deflate in an extreme deleveraging environment. So the politicians as usual are playing the only card they have - debt; they call it a 'stimulus package'. Hopefully the treasury market and dollar don't tank; if only the gov would avoid the temptation of low yield borrowing, and resultant increased supply of treasuries - and eventual effect on price and the dollar.
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  •  
    Nov 27 01:53 AM
    I'm just sick and tired of debt. I really don't understand why more people don't try and be fiscally conservative. Earn more than you spend! So many people are maxed out... They got to this point by spending money they have not yet earned. Eventually they have to pay it back. They couldn't continue their prolific spending into the future - they became maxed out. So how would the economy not slow, when so many people recently purchased homes that will take them 30+ years to pay off? It was clearly unsustainable and was actually VERY easy to see coming.
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  •  
    Nov 28 08:49 AM
    [What if we borrow a smaller percentage of college costs and shop for lower tuitions?]

    What if we quit paying what they're demanding?

    Higher education continues to charge ever more, and deliver even less with each passing year.

    The universities in this country must have learned "customer service" from the airline industry.

    There's not another group on the planet that is so clueless on who the customer is.

    The contraction in the credit market will prove to be a good thing if it pushes higher ed prices down.
    Reply | Link to Comment
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