I’m totally comfortable with credit, deficits, and debt. As a woman and a small business owner, I wouldn’t be here without debt. I financed my education through Sallie Mae. I own a home thanks to my mortgage company. (In fact, I own two homes.) I started my business with a dream and an airplane ticket (purchased on a credit card) to a blogging conference.
I look around the world and shudder when I see cash-based societies. America would look like Afghanistan if we didn’t have a credit market. Women wouldn’t be empowered to own businesses. Girls and boys wouldn’t be educated. We would be ruled by immediate gratification instead of long-term thinking. That’s right. The concept of debt can help us make better strategic decisions because we can think, prepare, and spend past the next season or cycle.
Credit markets and deficit-spending are tools that are often misused and misapplied by greedy special interests. You can blame a person for taking out a subprime mortgage, or you can have a more holistic view and blame an industry that targeted poor families and promised them a bill of goods. Don’t even get me started about the industry that rolled up all that bad debt into a ‘book of business’ and then auctioned off that risk to the highest bidder.
So let me write this clearly: I’m pro-debt and pro-deficit. I want to feed our children and protect our citizens. I want strong borders and a strong military infrastructure. I want a space program. I want universal healthcare. I want to help small businesses achieve future profitability. I want jobs. I want human rights. And I’m okay with asking our children to pay this off in the future because we’ll be making their future better.
Am I crazy? What do you think?
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Yeah, its OK to want it all. Our children will just ask their children to pay off THOSE debts then, too. Oh, and don’t think its a neverending cycle! When natural resources begin to diminish and cannot be found and the world is thrust into choas as it fights over the last remaining oil deposits, all debts and deficits will eventually be forgotten as people struggle to just survive day to day. In conclusion, lets build everything we can today, live to the fullest, and let future generations toil and lament.
You are not crazy. I agree and as usual we are on the same page. I also like taxes! Look at all we get in this country for our money…great roads, amazing civil services, parks, school, and wonderful communities that run with little or no thought from the average citizen = so we can run businesses instead!
You need me to pay more? I’m in.
I agree with you that credit is a good thing.
However, if you’re referring to the amount of the U.S. Federal deficit or even to just the bailouts then I find your post to be too simplistic.
Do you think that buying your house would still be a good bargain if you have to take over 100 years to pay it off? (BTW, unless you have fully paid off your mortgages you do NOT own your two houses, the mortgage companies still own them) Do you think that charging things (necessary or not) on a credit card that charged a high interest rate even if you paid off the full amount each month would still be okay? While you might get by for a while, there will come a time when too much debt “shuts you down.” This is because other creditors will see your total debt and believe that you will never be able to pay them – end of more loans and other credit. Just ask many who have filed for bankruptcy how they like living in a “cash economy.”
That’s the current problem with the U.S. Federal deficit – it is TOO high. Yes, we are paying off the deficit that our parents’ generation ran up; but we are running up a even HIGHER debt for the next generation. The total for the U.S. Bailouts (not even the entire U.S. Federal deficit, just the bailout) is now TWICE the annual U.S. economic output. There will come a time when creditors will stop investing in the U.S. because (just like the creditors in the previous paragraph) they will believe that they will not get paid. If this happens, what kind of world will the next generation live in? How will they prepare the world for their children? A pay as you go scheme? Print more money, which leads to inflation, to pay off the crippling debt? Have other countries help bail them out (with string attached, of course)?
That’s one heck of a legacy to leave for “our children.”
Ahh.. I heart you.
I like how you explain this! It makes sense when you put it this way… and I’m a libertarian! HA! But I can still value other viewpoints unlike some!
I think I’m generally with you on this point. Just don’t know what the right amount of debt is. This does explain your tweets during the Dave Ramsey speech. He, of course, thinks your credit score should be zero and you should have no debt. I might try that in my next life, but I’m living for today right now.
Agreed all the way, Laurie. Credit, deficits, and debt are tools — they can unfortunately be misused, but without them we’d still have a medieval economy. People who say governments, companies, or even individuals shoould never have them lack a fundamental understanding of how economics and finance works.
I’m also very annoyed by people who mythologize the past and talk about how people used to be *so* much better with debt and credit. That’s because these supposedly better people didn’t have access to what they do now (or did until recently) — fifty years ago, there weren’t subprime mortgages, countless credit card offers, or HELOC schemes either. If they did have access to these things, I doubt they’d have fared much differently.
I agree with much of what you and Tim have said. As a society we need credit to achieve our potential. If businesses and people were not able to borrow against future earnings then most of us would not be employed. Business need money to make money and that creates jobs. Students need to borrow to finance education to become valuable members of our society.
While I now live very much within my means and have minimal debt, when I look back there were times that being heavily financed were necessary. If I wasn’t able to borrow money when I was younger for my education, my car and even my day-to-day living expenses (during some very dry periods) I would not be the responsible, tax paying individual I am today.
I think the trick is to know when you need to borrow for your future and when not overexetend yourself beyond what you will be able to pay off. Healthy debt is about needs, not wants.
It’s a very very complicated issue. So complicated that most people never learn how to leverage debt (ex: it’s good to borrow $100K to start a biz at 5% interest over 10 years, if you think you will be making a million a year in that time; it’s bad to pay 13% interest on a $500 piece of crap tv over that same amout of time).
The only thing I don’t own in my life is my house, but I bought it on a 10 year mortgage to reduce the interest paid. I choose liquidity, which works best for my situation, but if I wanted to start a biz, then I’d have to borrow as well.
Hmmm . . . an interesting outlook. Yes, debt and credit can be good, but as with anything, it is only good in moderation.
There is no replacement for spending money responsibly – be it cash or credit. That goes for the government, too. I’m OK with maintaining a manageable deficit, but we shouldn’t over extend ourselves.
I’m also OK with paying some more tax if that helps. However, I’m not OK with wasting that tax money. Knowing that 3% (soon likely to be more) of my paycheck goes to the State of Illinois, I get pissed when I have to wait for 2 hours to change my address on my Driver’s License at the DMV. Why can’t I do this online? How about a little process re-engineering in our government agencies to fund new initiatives instead of pulling out the checkbook?
Laurie,
I enjoy reading your posts.
Don’t forget the government told “the industry” (Freddie and Fannie) that they HAD to give those loans to people that could not afford them. Most banks sell their loans sell their loans all the time, so that is not the problem. I do agree that many loan officers and managers in the mortgage industry took advantage of people offering loans at 100% when they should not have regardless who was telling them to.
OUR health care system definitely needs a lot of work to improve coverage and inefficiencies to take the best system in the world and make it better. That does not mean the government must force their health care plan on individuals and business owners.
We really don’t need the government this involved in our business or it will be impossible for small business to even survive.
“I’m also OK with paying some more tax if that helps”
I’m not! I think there is plenty of room to cut spending before they raise taxes. Your DMV example is perfect. What an inefficient use of taxpayer resources (and your time) to make this an in-person transaction.
Why did I have to make three trips to the courthouse to get my wedding license, each time spending several minutes with a wage + benefits employee?
Why did the governor of Wisconsin spend $5,000 on a business class ticket to Ireland instead of 1) going coach or 2) staying in the state to try to convince Thomas Industries/Mercury Marine or any other business that is leaving the state, along with hundreds of jobs, to stay?
Why is my tax money paying for someone else’s day care? Why are the city buses mostly empty?
Oh man. No, I am not willing to pay extra.
Laurie,
Interesting approach. My only concern with rising deficits is the rearing of inflation as a result and inflation takes away all those things Americans come to enjoy…good food, nice homes, travel. I thik a balance needs to be created. Certainly deficit spending was needed to break the viscious cycle of job loss and home foreclosures, ect., however, I think the liberal are overreaching with healthcare. Check out the Congressional Bodget Office website and read their data on cost and the huge huge deficits that will result. Its kind of scary.
Yes, you are crazy— but that’s beside the point.
I agree with most of what you said– and agree with most of what everyone else has to say. Personally, I’ve never had a credit card– nor have I taken out a mortgage– or a business loan– primarily because I’ve seen vast numbers of people abusing these institutions for short term gain– and use bankruptcy as their comfy little baby bottle when they fail– usually out of ignorance and greed. You being the exception, the vast majority of new business fails, there are MILLIONS of people abusing credit AS WE SPEAK, regardless of an economic crisis– just to buy the latest iPod Touch, or HD Big screen, or 26″ rims that they really DON’T NEED– knowing that uncle Sam’s gonna wipe their ass for them when they collapse. It’s a consumerist, capitalist joke!! And we sit here in our undereducated, pathetic ignorance wondering why there’s an economic CRISIS??? And wonder why the rest of the world thinks of Americans as Fat, Illiterate, Gun-totin’ Morons?? Puh-lease—- It’s pure, unadulterated avarice from the top to the very bottom, my friend– and don’t be in denial that it isn’t. American’s are gorged on credit— and we lust like no other society in the history of the world, for MORE, and MORE, and MORE!! hey 9-11….
If everyone was like you– it would be different— Sorry Laurie– but it’s definitely not.
OH! On a side note, I am SO TIRED of people saying the economy is improving right now! As if “positive thinking” or power of “The Secret” theories can change the status of the complex economic meltdown we are seeing here…. grrr I could just punch those fools in the nose!
What generation of children HASN’T had to pay off (or, at least start paying off) their parent’s debt? I’m not saying let’s screw things up so bad that our children and grandchildren have to live in caves and hunt rabbits for food, but come on now.
Debt is a tool, pure and simple. It can be used or misused, done right or done wrong. Now I believe in WAY too many cases it’s been done wrong, but that’s like blaming a hammer for letting people break windows.
Debt, done rationally, is a calculated risk and return – yet it often screws up, but can overall be useful. It’s sort of financial lubricant or stretching finances to get more out of them.
That being said I think there’s often been a kind of Dual Irrationality to debt in America summed up as:
1) Debt is really bad when it’s run up by things I don’t like.
2) Debt isn’t an issue when it’s run up by things I do like.
These of course both ignore the fact that debt is best used to target and achieve specific calculated risks. In the case of government, yes I’d love us to pay down the national debt – and we’re going to have to – but we need the financial leeway to ensure we can build a good future. I prefer to pay-as-we-go (remember when we had a surplus?), but understand it is at time’s necessary.
It’s all goals and proper tools.
Never thought of it this way. I totally agree.
@class factorum
It’s a small world, after all. I find it an odd coincidence that you mention Gov. Doyle’s visit to Ireland in your post as it was most likely my company that he was going over there to meet with. I agree that perhaps he should have saved the tax payers $4250 and gone coach.
I agree that spending should be cut before any consideration should be made to raising taxes. But I suppose I should think before I make a blanket statement like “I’m OK with paying more taxes.” as – per Steven’s post – I’m only OK with paying more taxes if its used to buy more things that I like (Funding Child Welfare Services for example) not to give a raise to the Manager of the DMV who obviously wouldn’t last a second in the private sector and would get a 0 on any performance review I gave him/her.
Very interesting……I hadn’t ever thought of it this way. I agree with much of what you are saying- although I think there are so many issues wrapped up in this whole topic that if I went on about them- it would turn this paragraph into a book. As a country….Bottom line= I don’t think we can effectively operate without credit/debt but I do think there are more responsible ways to spend the money that we do have.
The single most corrosive political concept of the past 20 years is probably “tax relief.” It implies that the municipal services we all enjoy in common — roads, sewers, parks, public safety, schools, etc. — don’t need to be paid for in common. That’s just delusional.
The continued popularity of this rhetorical trope is one measure of how far our political discourse has deteriorated. We need to talk more about how we all contribute to the “commonwealth,” and quit whining about “tax relief.” We all have a *right and responsibility* to share the financial burden.
I’m proud to pay my taxes, and wish some of my fellow citizens didn’t invest so much time, money and effort in weaseling out of their end of the social bargain.
I never thought of credit as fostering a long-term, strategic approach. I will have to mull it over for a while, though I suspect the same argument can be used to promote saving and using cash.
Overall I agree that credit is a positive thing, though like anything else it can be abused. More importantly, I enjoy the things that our current budget defect will buy; a growing economy, decent eduction for my neighbors, good roads and investment in future technology. I am willing to pay for all of these, but I expect others to do the same.
Modest debt/deficit is acceptable and essential. One of Alan Greenspan’s concerns during the Clinton surplus years was losing control over the economy by no longer being able to adjust interest rates. As presented in his memoir – The Age of Turbulence. (No, I haven’t read the revised edition with the additional chapter on how he got it wrong.)
When tallying up your personal obligations, do not forget to include your share of the national debt, currently in the vicinity of $35k in principal with interest payments exported to China.
Unfortunately, many Americans now live under Infinite Debt. FMI get the April 2009 edition of Harpers Magazine – http://www.mahablog.com/2009/03/13/infinite-debt/ (I would offer to send you my copy, but it has already sent out for recycling.) Another more complete extract of the article is available at http://pulsemedia.org/2009/03/23/infinite-debt-the-legalised-crime-of-usury/
This well written article concisely describes the demise of the community banking system where your debt was lent and repaid within the local economy. Instead the biblical sin of usury become main street economics replacing the conservatively pure and financial responsible model as presented in Jimmy Stewart’s It’s a Wonderful Life. Loans were made based on a person’s character as well as appropriate income and obligations. That doesn’t happen any more.
Community banking was effectively destroyed by a Minnesota court decision that eliminated state oversight of interest rates. Thus the credit card industry was fertilized, enabled and exploded into gross profits, fees, and now, infinite debt for too many Americans.
For all the things you want Laura, how will they be paid for? Someone else’s money or pay-go?
@Chris What if we build awesome stuff and leave our children a lasting legacy of greatness and prosperity?
@Leanne Awesome. Glad you’re on the team.
@Charles Maybe I’m crazy, but I never intend to pay off my house. Whether it’s 30 years or 100 years, I plan on moving or dying. Debt is just a vehicle and a concept to me. It’s a means to a better place.
@Amanda Backatcha!
@KFP I’m totally intolerant.
It’s so funny but I’m more tolerant as I get older. I’m much more willing to entertain other points of view; however, I’m still 10% sure that I’m always right.
@TimG Oh thank you for reminding me of how much I disagree with Dave Ramsey. That guy would have you living in hobo clothes and eating beans if he could…
@Tim I think about the late 70s & early 80s and how credit/purchases were managed — and I can see in my own life how credit has improved our society. What was so good about the good old days? Blech.
@Michelle Such a smart & balanced comment!! Thank you!!
@HRPuf You know, you’re so right. We don’t teach people how to manage debt. All those rich dudes who benefit from stock options, bonuses, & mergers/acquisitions? It’s all leveraged debt. Rich people do it right.
@HRPuter Don’t get me started on state govt. When George Ryan was secretary of state, it took SEVEN HOURS for my cousin to get her first drivers license at the DMV on Golf in Niles. How do I know? I took her. It was a nightmare. You would think the internet would make this better, right? No way. Took me several hours to transfer my license to North Carolina.
@Steve Thanks, but Fannie & Freddie are only a subset of the crisis. Bad loans were made across the industry — and I’d like to blame the government, but private industry led the way with these bogus risk schemes.
@Class I’m not willing to pay for the Iraq war. I’m not willing to pay for Dick Cheney’s extended secret service. (Oh wait, I don’t have a choice. Snap.)
@Daisycutter I heard someone say (and I can’t remember who) that inflation is psychological. So how do we fight the psychology of it? That’s what I want to know. Also, I hear you on the cost of healthcare but what’s the cost of not doing anything? Would be interesting to hear how much the status quo costs us down the road.
@Jenn It would be so cute if kids lived in caves and hunted food. You know Walmart would be all over that — providing low-cost bows & arrows, cute cave accessories made in China, etc.
@Steven I love the dual irrationality. I hadn’t thought about it that way.
@Gina Thanks.
@HRChick I agree and I want to efficiently spend money and go into debt over important things — not $500 hammers and $1000 toilet seats purchased by the government.
@KenMoir You’re point on rights & responsibilities resonates with me. It’s the same way I feel when people complain about jury duty. I want to say, “Stop complaining. You have a right to a jury trial, and a responsibility to serve when called.” What’s the alternative, anyway?
@George I’m just glad you’re here on my blog! Glad to see you.
@RMS Shoot, that’s awesome. Lots of meaty stuff. I’ll go find those articles. I like the idea of pushing debt onto future generations and hoping the debt will a) be forgiven or b) be absorbed or c) be rolled up into a book of business and auctioned off in a new marketplace.
Maybe we’ll defeat China at some point and just call it even.
Honestly, I have no idea how to manage much of this debt but I think the ‘hang ups’ we have with deficits are as much psychological as they are financial.
I enjoy readying your posts Laurie, for one simple reason. First, you make me laugh. My RSS trigger was pulled quickly after my first F@%K it Friday read. Second, you make me think of the paradigm’s that I have in my mind around common subjects. On this issue I agree with you on one small part. Debt is certainly a tool that is often misused. However, “we would be ruled by immediate gratification instead of long-term thinking,” applies more appropriately to those who rely on credit and deficit spending to live. Those that live life without being “attached at the hip” to credit have to plan long term and think strategically in a way that deficit spenders never will. They have to sacrifice and live with a different level of self discipline. The deficit spenders don’t have to wait and plan their spending…they just instantaneously swipe.
Also, I have never met someone whose marriage has fallen apart because they were free of debt. But I have met many whose marriages have fallen apart due to financial strains due to debt. Many more lives are negatively impacted by personal debt.
It is important to say that I do not blanket this viewpoint across the globe. For example, micro enterprise development is changing the face of impoverished communities all over the world each and every day. The difference = culture. Our culture is one where instant gratification is king. Therefore, debt is a much more powerful and potent tool.
Lastly, in regards to our government. There is a reason that UPS and Fedex exist and make profits. They do a better job than USPS. I do not mind paying taxes and know that they provide us with great services across a great nation. However, the USPS, DMV, WI governor travel, etc., prove to me that they are not to be trusted with my money.
Thanks for the great post and discussion to follow.
@garrickt
I’m about balance and my opinion of Ramsey’s work is no different. I think he makes more good points than bad. For example, I agree with cutting up credit cards; I’m not so gung-ho about paying off my mortgage (and I don’t believe Jesus wants me to, either).
Ramsey nailed it a while back when he said “credit is America’s next great health crisis.” Just listen to the fear and desperation in the voices of his callers. I’m sure “living the life” seemed great to these people when they filled out a credit card app at a baseball game, but I bet their households aren’t very happy places now that the markers have been called in.
There are people (like me) who just sleep better at night knowing their entire existence isn’t leveraged. My existence might not seem like much in the eyes of others, but I choose not to participate in the debt-driven consumer game… and become a Ramsey caller.
Laurie, I agree with this post and find it very heartening. Can you and Ken Moir get on a presidential ticket?
I live in Michigan and I see important education, public works, public assistance, public health, etc. programs being cut because lawmakers want to (and know they can) score easy points with a bunch of stingy people who can well afford to pay their taxes but choose to be mad about an expensive painting in the Capitol building or something, and somehow decide that means they shouldn’t have to pay any taxes whatsoever.
Honestly, I think the services we need to pay for and any government waste that is going on are two separate issues and should be discussed separately. As it is, people use (admittedly egregious) anecdotal examples of waste to dishonestly shut down any opposition to their position, so a productive discussion never takes place. (Nobody here is doing that. I’m thinking more of scary places like newspaper comment threads.) Like, we may agree on paper that we want to pay for great schools, roads, and services that serve the state’s residents well and attract others to the state. OK, good. Then the fact that a particular bonehead assistant to the department head (or whatever) is wasting money on something (which, let’s be honest, is usually like 1/1,000,000 or less the cost of any real substantive line item) still does not mean that the prioritized programs should not be funded–properly, not with money that doesn’t really exist or with a bunch of symbolic caveats designed only to make it clear that said governmental unit is being “tough on waste.” The two are not really related in my mind. Instead, it means that particular bonehead should be fired or have his budget taken away, or if it is an endemic problem in some department, get someone better in there to clean house.
To my mind it would be better to borrow now, use the money to address some of the situations that are keeping us in this crisis for years at a time (if Michigan works only within what it can immediately pay for right now, then good luck keeping anyone in the state, much less getting anyone else to come here. Of course we have to to some extent because we have a balanced budget amendment. I do not like balanced budget amendments. Anyway). Then pay it back when the situation is better. I would also add that if you (again, not any “you” here, just people in general) can afford to send your kids to private school if you have to, replace your vehicle when terrible roads destroy it, and live in a safe neighborhood (among other things), of course you’re going to feel your taxes are too high because you’re lucky enough not to need any help. To me this is an example of where the majority (reasonably well-off people and those who are making it one way or the other) should not get to decide for the minority (desperately poor people who NEED these services) whether they get to live or die and whether their kids ever get to escape the cycle of poverty with decent nutrition, education, etc. because realistically most do not have that option without some assistance.
P.S. I have no debt other than my house on a 20-year fixed rate mortgage, lest my attitude give the impression that I’m some crazy spendthrift or something.
@Laurie Didn’t mean to offend– the crazy thing was said in jest– I just feel very passionate about what drives people towards credit– consumption– and keeping up with the Jones– it wasn’t a critique on you. It’s the bohemian artist coming out– I guess—
@MattyMat What? You didn’t offend. You are adored.
@Spacedcowgirl This rant is genius and should be a blog post for you — although I appreciate that it’s on PRHR. Go put it up! Drive content to your site with this amazingly good comment.
@Rick I dunno, I think America’s next crisis is infrastructure, followed by education, and then maybe credit. I’m okay defaulting on credit debt, actually, if it means paying health premiums. And I’m okay socializing our medical system and putting health insurance companies out of business and employing those people in other areas of our economy — like infrastructure and education. Obama is very subtly shifting the way America employs people and spends money. When it finally hits the electorate that we’re on the precipice of real change, it will be interesting.
@Garrickt I think we agree except that I would choose USPS over UPS or FedEx any day of the week. Their new APS units are great, delivery is reliable, and the people are nicer than we care to admit. My mail comes daily and at a reasonable price. My personal business is with USPS and not those other companies. GIVE THE POST OFFICE A TRY, PEOPLE.
@Steven
That being said I think there’s often been a kind of Dual Irrationality to debt in America summed up as:
1) Debt is really bad when it’s run up by things I don’t like.
2) Debt isn’t an issue when it’s run up by things I do like.
I think the above post is Brilliant!
Now my own little rant, I am not willing to ask my children to pay of my debt and find it interesting that people who do not have children are willing to
).
I work hard for my money and get tired of bums and incompetent goons trying to redistribute my hard earned wealth it to those who are unwilling to work.
That said I would support free education and health care for students through advanced degrees with limitations. This is assuming you disqualify people who do not take care of themselves, such as fatasses, illegals, smokers, drinkers or druggies who are not seeking rehab.
@Ronald R/Steven I am still young enough to have children, and sometimes I just want to have them to teach them math, indoctrinate them with liberal philosophies, and have them poised to take over the world — Manchurian Candidate style (only successful) — with my agenda.
Adored?? Gracias Senorita!!
You correctly note “Credit markets and deficit-spending are tools that are often misused and misapplied by greedy special interests.”
Some debt is good — as long as it’s reasonable and within one’s ability to manage it. Overleveraging is….well, not so good. That’s what got us into this mess in the first place. Doesn’t matter if it’s personal debt, debt incurred by a small business, or massive amounts of debt taken on via deficit spending.