Friday, April 11

Love of Credit

How are you going to pay for a new car and your daughters wedding I asked?

Credit is the obvious answer. The new car can be repaid over the next 5 years with a very hefty residual at the end of the lease period rather than having to find a deposit at the beginning.
The dealers giving me cash for my old car, I can scarcely believe the trade in amount which will more than cover my daughters wedding. It’s the best thing since sliced bread. The future can only be blue sky.

And communities living in sparkling new houses can be created from land and house packages that don’t need a deposit either.
The financiers work with the devolopers to make all those dreams come true with the magic of credit. And all of the new furniture purchased doesn’t require any repayment until 2 years hence. The credit cards they have will look after the honeymoon. It’s incredible. I think they may all be in love, with the credit system I mean.

But that only represents the first blush of this affair. Established home owners who had equity in their homes were chastised for allowing this credit to lay idle, rather to take advantage of the opportunity to make more serious money by becoming a property investor and buying other houses, or maybe to suitably reward themselves with a decent holiday or to buy a more prestigious car or just about anything at all. In fact these equity loans were designed to make people feel good, to do what they liked with the money. Sure enough many fell in love with the idea all over the western world; and so began the golden age of love of credit.

Society itself is also benefitting in this golden age since some governments are also discovering the beauty of credit. They can spend far more than receive and promise a whole lot more than would have been possible, should that have been restricted to that which represented the sum total of all of their receipts less expenditure. If the figures add up to huge amounts in borrowings it wont matter either, since it’s making the world so happy they will always want to keep increasing their lending by increasing credit limits.

Alas sometimes balloons burst but there will always be people willing to chip in few extra dollars to buy some more and blow them up again. Besides the extra spending is creating employment. When the repayment becomes unsustainable you simply sell off your national assets to the creditors.

Credit helps make the world go around only so long as it can be repaid from savings.

At the end of the day the only real wealth ever to exist is that which is sustainable and capable of sustaining us in perpetuity.

7 comments:

Seraphine said...

Thise are very true words you speak, Lindsay.
The credit bubble has burst. Easy credit is has already disappeared, and low-cost credit is going to disappear as soon as the credit markets finally "unstick" themselves.
It's going to be a long hangover.

Gary said...

Amen!

And the next balloon to be blown up is the 'green industry'. We need it and it will be so popular to invest huge amounts of speculative cash in it - then boom! Hope it does some good first.

No loans for weddings these days :)

Seraphine said...

Is your daughter really getting married, or was that a representative example for discussion purposes?

I can understand a mortgage, or even an auto loan. Credit isn't necessarily an evil invention.

Buying on credit because you can't afford consumer goods is sketchy, though.
If you have to borrow to keep up with your credit payments, you are already in trouble.
Borrowing out of desperation... well, what have you got to lose that's not already lost?

lindsaylobe said...

Hi Seraphine & Gary

Thanks for your thoughts.
Seraphine : I was only being illustrative. 2 of my daughters are happily married with children, and my youngest Rachael is single and a musician.

If you would like to listen to her songs click on the link under Rachael Byrnes on my blog, there she has a number of her latest songs eg
La La Land
Less is More & The Oily rag etc and a few articles that may be of interest as well.
Best wishes

Cart said...

Oh for a return to the gold standard, or any other backed currency.

Lindsay, please pop over to Awarding times
for a pat on the back.

Zee said...

Before I read Gary's comment, I felt like saying Amen as well - but he took it out of my mouth, rascal ...
In general, it just astounds me how people still follow that pipe dream that something can be created out of nothing.
If people actually would invest their credit into something productive, I wouldn't mind at all. But for now, assets are melting away, like the liked on lollipop in hands of an immature child.

grannyfiddler said...

there's an old saying... "if someone is getting something for nothing, then someone else is getting nothing for something." with our borrowed money, we import vast quantities of goods from people who will sell them to us for less than it would cost us to produce them at home, ourselves. our landfills are overflowing with the results of that. we argue that our spending provides much needed income for the workers who produced the goods we devour, but the truth is that most of what we spend only pads the coffers of the rich on both sides of the transaction.

and when the crash comes, those wealthy ones who thought they were at the top of the food chain learn that a healthy garden and a goat or a cow can feed them; vast quantities of paper and coin can not.