Friday, October 3, 2008

Bailing Out Of A Boat That Still Has A Hole In It

A few months back I wrote a post titled “The New Poor” in which I warned and condemned the ills of the credit industry. Now, with the perspective of the credit institutions collapse and the pending bailout, I am going to revisit the issue.

Merriam- Webster defines “addiction” as “compulsive need for and use of a habit-forming substance (as heroin, nicotine, or alcohol) characterized by tolerance and by well-defined physiological symptoms upon withdrawal ; broadly : persistent compulsive use of a substance known by the user to be harmful.” I think “credit” fits that description to a tee. This country is fueled by a negative savings rate.

What that means is that shit creek is driving us towards the giant falls at a rate of 10 knots and we are paddling away from the fall at 9 knots. It is not a good equation for the American worker. Everything we do is on credit basis. That fact has driven up the cost of everything. How much do you think a car would cost if you had to go to the car lot and buy it outright? Do you think a doctor could charge you $1500 to walk into the patient room if he expected to get paid in cash? The cost of a big screen TV would be half the price if people couldn’t spread the payments out over 3 years. The fact that our credit addiction exists and has grown out of control, while our wages per hour has not even remotely kept pace.

So, in case you haven’t made the relation yet and are asking what does this have to do with the “$700 billion bailout”? The answer is I don’t see how this bailout is going to cure the root problem. I am not sure what progress we are going to make by bailing out the credit companies. The reason we need to bail them out is because they can’t supply more credit. That would be like freeing Afghanistan from the Taliban because the local poppy farmers are being repressed and can’t grow the crop they need to produce heroine. (Wait a second. Never mind.) So won’t that money go right back into the hands of people who can’t afford to pay them back? What will stop the situation from repeating itself?

The problem is that consumers buy stuff, when they buy stuff they employ people who become consumers. The problem is that “the employed” part of that circular equation is in a severe amount of relative trouble. For years Americans were will, but not able to buys stuff and services. The credit industry “enabled” us. So now we buy things we really don’t need, with money we really don’t have, counting on labor hours that are becoming less and less guaranteed.

Here is a novel idea. wouldn’t it be kind of cool is you could walk into a store, swipe a card that holds your employment information, and the price would be spit back at you not in dollars, but in hours. so, i.e. you make $10 p/h bring home pay. you go to buy a pair of shoes, swipe your card, and the computer spits out, “that will cost you 10 hours of work. Oh you are paying with a credit card? That will cost you 12 hours of work. Thank you for shopping. Have a nice day.”

Imagine, you go to buy a car and the salesman says to you, “You are going to work through Thursday on the first week of every month to pay for this new vehicle.”

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