January 3, 2010 – There is a better way.
By The Cerebral Aesthetic Vagabond
The percentage you're paying is too high-priced,
While you're living beyond all your means.
And the man in the suit has just bought a new car
From the profit he's made on your dreams.
- "The Low Spark of High-Heeled Boys," by Traffic
Most Americans alive today have grown up on plastic, and I’m not referring to what has seemingly become the fundamental building material for everything these days, but rather, plastic credit cards, or just plain credit. Or to be more accurate, debt. The bankers in this country have given debt bondage the benign sounding name of “credit,” which sounds like a positive reflection on one’s character, in order to conceal the true nature of credit: it is debt bondage to bankers. The deeper one is in debt – any form of debt – the more securely one is bound to the treadmill generating profits for bankers.
Americans are so accustomed to credit – I got my first credit card before the age of 20 – that they not only do not view debt as anomalous, but as something equivalent to money This mistake, equating debt with money, is an intentional design of the banking establishment which wants us to go into debt to purchase things. So it has deliberately confused the notion of money in peoples’ minds, making them believe that debt is money. In fact, during the late, great housing bubble a tremendous number of people viewed the equity in their homes as money and wealth. While it was potential wealth that could be realized only if they sold their house, what most people meant when they referred to their home’s equity as wealth was that it was a reservoir of wealth waiting to be tapped by means of a home equity line of credit (HELOC), in other words, debt!
Even today few people understand the difference between money and debt. After all, both can be used to purchase things; both may involve the use of little plastic cards; both can be represented as numbers on a paper statement. But there is a huge distinction, with one representing unencumbered wealth and the other representing bondage to another.
As is apparent to many today, all the “advanced” economies of the world are in the incipient stages of collapse. Why? In large part because of debt. The root problem of using debt to finance everything is interest. Although paying interest to “rent” money is not unreasonable – after all, if I own something I should be able to rent it out for a fee – when the entire economy is financed with debt and that debt never gets paid off, but continuously rolled over, a classical exponential function emerges, and exponential functions in a finite world always come to an unseemly demise.
Nevertheless, until we crash into that wall of mathematical impossibility, we engage in heroic efforts to keep up with the exponential function, which is why, for example, house prices have such a prominent place in the mainstream media. House prices are a cornerstone of our debt-based economy. Aside from the fact that for most people a house is their most expensive purchase, many derivative financial “products” are based on houses and mortgages as well. It is predominantly these derivative instruments that are the focus of all the cheerleaders who constantly tell us that house prices are recovering. The alternative, falling house prices, creates a domino effect of losses slicing through the dark underbelly of our financial system.
And it’s not just house prices that need to keep rising, but everything else as well, notably the GDP. Our entire financial system needs to grow exponentially in order to keep up with interest payments, which is an exponential function if, as is the case, debts aren’t paid off, but are merely rolled over. Again, during the late housing bubble, many people rolled over their credit card debt into their HELOC, or rolled over their first mortgage into a second one, with a little cash out with which to have some fun. Either way, their debt burden grew larger.
When the facts do not support the claim that the economy is growing exponentially – by the way, when the government tells us that the economy is growing by modest-sounding 3% per year, that is an exponential function – then the statistics must be rigged to show the same, otherwise the entire economy of a country like the U.S., whose economy is so dominated by exponential finance, will be shaken to its core. Hence, the understatement of GDP-reducing inflation and the overstatement of GDP itself; the understatement of the home-price-reducing shadow inventory of homes for sale; the understatement of deflation-inducing unemployment figures (deflation is a very bad thing in debt-based economies). Lies on top of lies, but they’re “official” lies, so I guess it’s OK. The number one priority is to keep the “game” going as long as possible, not unlike a Ponzi scheme. Speaking of which, has anyone noticed that the term “Ponzi” is being applied to more and more enterprises and activities today? I recently saw a reference to the almighty U.S. dollar as a Ponzi scheme. Personally, I think people are finally waking up to the truth.
Of course, official intervention to prop up the Ponzi-like debt-based economy doesn’t end with tepid statistical lies. The government actively intervenes in some markets to prop up certain financial entities and suppress others. OK, OK, the government intervenes in every market: stocks, bonds, precious metals, currencies, commodities, energy, and most recently, banking, insurance, automobiles and health care.
The U.S. is always called a “free market” economy. What a laugh! Nothing could be further from the truth. Such is the consequence of a debt-based economy. If everything people, businesses and governments possessed was owned free and clear, there would be no need to jerry-rig the economy so to create the illusion of exponential growth. Arguably, one of the reasons the U.S. is out conquering the world in order to control one of its most precious resources, oil, is to pay interest to bankers.
Many people have pointed out that prior to the creation of the Federal Reserve and its easy money system the U.S. hardly suffered any inflation. For upwards of 100 years prices remained relatively stable. So why does the government have to keep debasing the currency by printing more of it? To pay for the ever growing debt burden. Ironically, the government never prints enough money to actually pay off the debt, but just to keep up with the interest payments. In fact, because of the asinine way in which things are set up, the government doesn’t actually print any money at all, but borrows it, creating a needless debt burden that just happens to benefit bankers. Regardless of how the money comes into being, the ever-swelling money supply slowly but surely debases the currency. That’s why, for example, a modest automobile that cost about $4,000 in 1973 costs $25,000 today, which works out to an annual inflation rate of about 5%.
Even the tacit encouragement of illegal immigration can be blamed on the need for exponential growth. Does anyone believe that government cares where its revenue comes from? It doesn’t care whether it comes from citizens or illegal aliens, as long as it keeps growing. And, of course, corporations love the profit-enhancing benefits of hiring illegal aliens. I was at a major retailer yesterday, looking for a new bicycle, as mine is on its last legs – an amusing colloquialisms when applied to a bike – and noticed something I had not seen before. While the underpaid “front line” staff were clearly not “illegal,” the workers normally kept behind the scenes looked as though they could be. I’m not saying they were, but that they could be. One of them was putting on display a bicycle that he had just assembled and I tried to ask him about the bicycles, but I was met with a puzzled look of non-comprehension, as if I were speaking a foreign language.
(In my own defense, the major retailer was the fourth place I visited looking for a bike. I went to one local bike shop and it was closed, on a Saturday. Another had no bicycles! I’m not kidding. He had a printed catalog from which he wanted me to select a bike. The third was a bike shop next door to an exotic car dealership, and yes, the bikes were appropriately priced for the neighborhood, with the most expensive bicycle priced at $10,000! And people wonder why small businesses are struggling. Maybe they should learn how to conduct business! And no, I didn’t buy a bike form the major retailer because I couldn’t find anyone to help me. I guess all the extra Christmas staff was disbanded.)
In all this talk about the evils of a debt-based economy, I hardly touched on the personal consequences of debt, of which I’m sure anyone who has ever been in debt is well aware.
Perhaps the single greatest benefit of being debt-free is the sense of freedom it gives one. Even though I’m rather poor (I guess that’s not true now that I have a job) I am relatively free of stress. When I had an income in the 90th percentile and debts to match, I was much more stressed out than I am now. Everything I own is fully paid for and I intend to keep it that way. My last house in Kentucky was fully paid for, as will be my next house. There is great comfort in knowing that what for most people is their largest expenditure, their house, is fully paid for, except for the incessant property taxes, which also follow an exponential growth curve. Why must property taxes keep rising? Because the debt burden of government keeps rising.
Anyway, for the last three years or so I’ve been debt-free for the umpteenth time (it’s so easy to slip back into debt). I haven’t even had a credit card for over two years, for the longest and perhaps the only time in the last thirty years. At first it was a little scary cutting up that last credit card. What if I have an emergency and need to spend a lot of money fast? People forget that prior to a few decades ago few people used debt to pay for things. People had emergencies back then and managed to cope without using debt or credit cards. If my car breaks down and costs a couple thousand dollars to fix, I’ll pay for it with cash. Since I’m not paying thousands of dollars of interest to greedy bankers, I have that money set aside for a rainy day. If I’m traveling cross country and may need a lot of money, well, I can just carry enough cash with me to cover any expected contingencies. There are also banks and ATM machines along the way, and believe it or not, people and stores still take personal checks.
For the last several years I’ve purchased everything with cash, and I love it. First of all, once you pay your money and walk away, the transaction is over and done with, for good. Purchasing things with credit cards always made me feel as though I was paying for something twice: once at the point of sale, and again when I paid the credit card bill. In addition, I had several instances over the years where the charge on my credit card statement was incorrect, or billed twice or some such error. That cannot happen with cash. Then there’s the anonymity of using cash, a true pleasure in this day and age of constant surveillance, not just by governments, but even more so by corporations that increasingly dominate the retail landscape. When I buy something, I love not giving out my name or having my purchases recorded in a database, the contents of which is available to anyone with a dime to spend. When paying with cash one doesn’t need to worry about their credit card, or debit card number getting into the wild or being swiped by an unscrupulous and underpaid staffer with a palm-sized credit card reader (yes, such devices actually exist). Finally, using cash makes it more difficult to spend money. Since I don’t carry a lot of cash with me, if I intend to spend a lot of money then I also have to locate a bank from which to withdraw that money, an extra step which gives me enough pause that it has on occasion prevented me from spending money.
Of course, cash is viewed with suspicion today. The other day I bought a new computer for $700. I handed the clerk the payment in cash, and one would have thought I pulled a gun or something. After a noticeable reflexive recoil, the clerk suspiciously examined each bill, holding it up to the light and then under a black light. Then she called over a “superior” who recounted and reexamined the cash. Christ, I thought they were going to call the Secret Service to give its imprimatur to the money! I’ve stopped in motels on my travels, only to have them tell me they need to photocopy my ID because I’m paying for the room with cash. It’s crazy, but I still much prefer using cash. In the two years or more that I have not used credit cards I have never once regretted not having one.
Now, for the meat and potatoes of this post. How is it possible to live without debt in modern day America? First of all, I’m sure millions of people do, so it’s clearly possible, but here are some of my ideas.
Consider how much money we spend on interest. When I had large debts, I was paying as much as $200 per month for interest, not counting my mortgage, which was another $2,000 per month of interest! That’s a lot of money, in return for nothing! Think about that for a moment. I’m not saying the bankers who lend the money don’t have a right to charge interest. They do, and we have a right to decline their offer. But what are people getting for all that money they pay in interest? Absolutely nothing! No food, no energy, no consumer goods, no entertainment. Absolutely nothing! With respect to interest paid on a mortgage, one could argue that the interest was purchasing a roof over their heads. Perhaps, but then why not call it rent? And if it’s rent, then why not actually rent something and pay less money and not be responsible for the maintenance or any potential losses of property value?
But how can one buy a $200,000 house for cash? Most people cannot even come up with the 20% downpayment for such a spread. First of all, houses wouldn’t be so expensive if they were paid for with cash. The only reason houses cost as much as they do is because of easy debt money. If everyone had to pay for a house with cash they would be far, far cheaper. Revisiting our debt-based economy, it’s necessary for house prices to keep rising, therefore it’s necessary to make debt easily accessible to people who buy those houses. The two go hand in hand. The end result is an ever heavier yoke of bondage around the necks of people who buy houses.
So I ask again, how can one buy a house without debt? I would reply by asking, “Does anyone really need a 3,000 square foot McMansion with five bedrooms and three bathrooms as a starter home?” When I was a kid, my family of six lived in what must have been a 1,500 square foot home with two bathrooms, situated some distance from the more expensive parts of town. Prior to that, my parents and I lived in rented apartments and houses. People might argue that they have to pay a high price for a house to be close to their work. But what if the house were paid off? Then they wouldn’t need their high-paying job to pay for the house and could live anywhere. In other words, the high-paying job, high mortgage payments situation is a kind of chicken and egg situation. Eliminate one, and the need for the other goes away.
When I was a kid, people had a different frame of mind about things like houses and automobiles. Back then, people bought whatever their means would allow and then worked and saved for something better. Instead of buying a brand new McMansion or urban assault vehicle, they bought a fixer-upper of a house and a crappy old car and fixed them both up as their income would permit. Over time, usually a long time, they would build up enough savings to buy a better house or a better car. Today, in our celebrity, jackpot culture it seems everybody wants to appear the instant millionaire.
Were people to substantially scale down their expectations and go back to the old way of doing things, both house prices and car prices would come down. Of course, there would be a lot more old-looking houses and cars on the market (“cash-for-clunkers” programs notwithstanding), and new houses and cars would be smaller, simpler and more down to earth, but people would be living and driving without debts!
But how can one save up the money for even a modest fixer-upper house? Simple, by helping one another. Suppose one could buy a house somewhere – anywhere – for $50,000. That is absolutely possible today – there are hundreds of thousands of houses for sale for less than that price today. How can one save up that seemingly unimaginable sum? What if they lived with a friend or family member rent-free for five years? Could they save up that sum of money? If so, wouldn’t that be a far better alternative than paying mortgage interest to some anonymous banker for 30 years? Once the beneficiary of such hospitality buys a house they can then return the favor to someone else by hosting them for five years. This approach to home ownership is not only more expedient than the “traditional” approach of encumbering one’s self with a mortgage for 30 years, but helps foster community and strengthen personal relationships, not to mention that it saves the home buyer a staggering amount of money that would otherwise be spent on interest. Consider that a $50,000 mortgage at 6% for 30 years would require repayment of $107,921, of which $57,921 is interest! Wouldn’t it be nice to have an extra $58,000? Or would you rather pay all that money to smarmy bankers, because just they’re such darn nice people?
And yes, I would be willing to host someone saving for a house, that is, if I had a house!
Our whole system today of education, entertainment, commerce and government seems geared either by design or happenstance to destroy interpersonal relationships. Because both parents have to work to service their debts, the children are “raised” by the school system, a task government mind-molders are only too eager to undertake. Thanks to technological innovations such as video games, telephones, DVDs, CDs, computers, the internet, cable and satellite television, people hardly need to leave their homes for entertainment anymore, resulting in their unfamiliarity with social skills or tolerance of others. When people do venture outside their debt-financed homes, most of them travel in style, in their debt-financed, needlessly oversized, urban assault vehicles with dark-tinted windows that shield the occupants from the view of the unwashed masses. Corporations and government seek to separate us from one another and instead turn to the big-brother, fascist partnership of corporations and government for all our needs.
We have the means to upset this awful system with its overemphasis on debt, which serves only to enrich and empower the very fascist partnership that’s slowly killing us. In the process, we can relearn civility, interpersonal skills and how to help others as well as ourselves. We can become truly wealthy again, not so much in dollar terms, but in terms of human relationships and freedom, freedom from debts, from corporate-government propaganda, freedom to be individuals again instead of stressed out, drug-swilling hamsters spinning treadmills for the benefit of bankers.
Many people continue to hope for change that will “restore” this nation to its former glory, but they fail to recognize that the entities responsible for destroying this country – the corporations and the governments – are in ascendance. Thus, there will be no restoration of the past, only a more rapid descent into oblivion, that is, unless people take a chance and make an effort to rediscover their own ability and their own power to be free. The most beneficial step one can take toward true freedom is to become free of debt.