Wednesday 1 May 2013

Debt is King I

Debt is King I

Recently I was saving money to attend a friends wedding overseas, it wasn’t cheap and I had to make sacrifices to be able to afford my trip. My bank disagreed, they were willing to guarantee me a loan worth 4 times what I had ever had in my account without me even asking for it. They sure didn’t believe I needed to make any sacrifices, this 4 years after the Global Financial Crisis, they still wanted to throw money in my direction, even though I have never had anywhere near that amount in my account. Why would a bank be so reckless? 

Because part of Economic Liberalism is the belief in progress, it may even be the defining belief within Liberalism. Any set back is only a stumble because the march of progress is relentless, it cannot be stopped it is simply unstoppable. Allied to this belief is the idea that money should flow freely, meaning that credit (loans) should be generous. 

A credit generous economy is generally a growing economy, companies can take risks because they can afford to take risks. That then leads on to another belief that if credit should be generous, debt is necessary, even good for the economy. If that is accepted than what should be a responsible level of debt? 

It seems that this is a slippery slope and we so often end up with the idea that debt can be unlimited. It turns out that economics and Human nature has something to say in this regard, because not everyone pays back the credit extended to them. This means that instead of credit paying for more credit which in turns pays for more credit, riskier credit is extended. Credit such as that offered to me. 

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