FedUpUSA

No Jackasses, Cheap Credit Does NOT Help (Anyone)

credit_trap

Two pieces that illustrate the same problem.  First, from Martha’s Vinyard:

But the place he’s leaving is no exception to that fraying. Though presidential photo-ops don’t show it, the island is actually a place where the wealth gap is starker than almost anywhere else in the United States, year-round residents say, and middle-class hopes and dreams are drifting out of reach.

Drifting?  No, driven.

The availability of “cheap credit” has made everything from houses to furniture to TVs to cell phones to cars more expensive.  Virtually everyone shops a “payment” now instead of a price.

Why else would you hear all the car dealers telling you how they can get you into a new car for “two-ninety-nine!” instead of telling you the price is $24,923?

That’s simple — everyone buys a payment.

House — same deal.  Do you qualify for a house or for a payment? You know the answer — and the big scam nowdays (and has been for the last decade) finding ways to get around the down payment — actual cash on the table has been reduced to record lows, with the goal for many being zero.

Then there’s student loans, as Taibbi recently went off on and which I’ve been covering for years.  They are alleged to make college “more accessible.”  Nonsense; what they do is enslave young people who are our most-vulnerable due to lack of life experience and being that they cannot be discharged except under extraordinary circumstance they’re one of the worst forms of debt slavery.

The truth is that the basic laws of economics tell you that when there are more buyers willing to pay a given price irrespective of how or why the price of that item will tend to rise.  This is true whether the thing is a car, a house, health care, college tuition or anything else.

Ultimately this forces anyone who wants said thing to use credit to obtain it as the ability to pay cash dwindles away.

And that, ultimately, destroys the middle class by making the true cost of such pulled-forward demand rise so high that it cannot be afforded at all.

So long as the government coerces this behavior for its own benefit so it can hand out money to its favored few, whether those be “poor” people (with iPhones of course) or defense contractors this cycle continues until it is either voluntarily abandoned or it is forced to stop by impact with the zero boundary.

Oh wait….. where are we now?  Hmmm…

The only way this destruction of the economy will stop is when the subsidy for ever-cheaper credit, including things such as demanding financial information and sign-offs from parents at colleges, back-door (and front-door!) bailouts for lenders and manipulation of the credit markets by both Congress and The Fed (doing Congressional bidding) stops.

This will force the bankruptcy of many firms that simply cannot compete in a free market and offer their goods and services at a price where people can paywithout said subsidies.  These bankruptcies will include car dealers, colleges and phone companies among others.  But all those bankruptcies are healthy as they will drive down prices while clearing all the excess debt from the economy at the same time.

There are many who claim that such “deflation” would be ruinously bad.  They’re wrong — it would be a huge boon to everyone other than those who have their so-called “wealth” tied up in these over-levered bastions of scam.

And that is most of America.

Consider health care at one tenth of today’s price.  It’s achievable; hell, you can have surgery today at 1/5th of today’s price in the United States for cash.  I’ve written about the Surgery Center of Oklahoma repeatedly.

Consider college education at less than one half of today’s price.  It’s achievable.  Easily so.

Consider cars at materially less than today’s price.  They’re achievable.

Consider houses at half of today’s prices or less.  That’s achievable too, and so is a 50% reduction or more in municipal spending.

Oh sure, we have to accept that along with this there will be a reduction in municipal services.  There will no more gold-plated pensions for cops at $100k+/year including full free-ride medical benefits starting at age 50.  There will be no more “school administrators” collecting six-figure pensions (and in some cases two or more of them!) either.  There will be no more gilded crap on University campuses — unless you can afford to buy it with cash, and most people both can’t and won’t.  And there won’t be any more medical monopoly games, because there will be a market and if you try to restrain trade you’ll go to prison as you should have a decade ago.

The only remaining question is this: Will you rise, right now, and demand all of these changes?

Or will you opt to do nothing, be a slave and worse, enslave your kid(s) as the inevitable secular change in the interest rate environment unfolds right before you?

I ask this because that change is happening now and there is nothing anyone can do to stop it.

Choose wisely.

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