The latest word from Treasury Secretary
Henry Paulson is that he believes “we have stabilized the major
financial firms” and that he does not anticipate any more failures
of large companies. He has effectively declared victory in the
so-called economic crisis that this nation is facing, a crisis
largely the result of the overextension of credit. So what is his
next goal? Why, to make sure that consumers begin borrowing again,
because the economy needs to get moving again. So, he's decided that
the $700 billion which were supposed to be used for the purchase of
so-called “toxic mortgage-based assets” from troubled banks, will
instead be used to encourage banks and other financial institutions
to begin making more loans to consumers. In other words, he wants to
start another round of loaning money to people who cannot afford to
borrow it, simply to avoid something loosely defined as “turmoil in
the markets”; which is evidently something to fear, at least for
the entrenched political/economic power brokers in Washington, D.C.
and on Wall Street.
We are being told that consumers must start spending in order to
prevent the economy from falling into a depression. The truth of the
matter is that the Federal government has made such a hash of the
marketplace that it is impossible for anyone to be able to predict
what is apt to happen next. And that is why banks are being so
reluctant to resume their practice of lending to those on the fringe
of economic viability as they don't want to pile up a bunch of
potentially bad loans. Unlike the mortgage crisis, in which the
banks are at least able to take possession of a physical asset, the
house, of someone who defaults on their mortgage, they cannot do that
with credit card-based debt. Those loans are what are known as
unsecured loans, there are no assets at risk for the borrower should
she default on her credit card payments. When a bank has to write
off a credit card account as non-performing they have no way of
recovering any of the money which they loaned the consumer. They
cannot seize the flat screen TVs, the vacations, the PCs, etc.. that
were purchased with the now worthless credit card.
Once again, the Federal government is acting in a way which will
simply exacerbate the current economic difficulties that we find
ourselves in. Rather than allow the market to take its natural
course, go through a period of re-adjustment (known as a recession),
and emerge with assets better distributed, to companies and
individuals better able to use them than were the previous owners,
the Feds insist that all troubles must be resolved in an
extraordinarily short period of time. Thus, the State will put in
place some sort of “program” to encourage the accumulation of yet
more consumer debt, at a time when the economy cannot afford it.
Rather than encourage savings, which will act in the long-term as an
economic stimulus by providing a solid foundation for the economy to
grow on, the State insists that “market turmoil” can only be
avoided if consumers act now to continue to pile up their credit card
debt. I would not be surprised to see Secretary Paulson propose that
interest on credit card debt be made deductible from Federal income
taxes, in the same way that mortgage interest payments are. After
all, if such encouragement works for overly stimulating the housing
market, there's no reason why it shouldn't work for credit cards.
Remember, the goal of the State is to avoid “market turmoil”
which could result in those currently feeding at the public trough
being displaced. Thus, it is imperative, in the eyes of the State,
that consumers continue to spend themselves into such debt that they
will forever be in thrall to the banks, even if that enslavement
results in yet another financial crisis in the near future.