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Liberty News ForumLNF Forums HereEconomics, Financial News › Debt: A Way of Life
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Debt: A Way of Life
Feb 7th, 2016 at 11:08am
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The United States economy, during the period from the end of WWII to present has evolved from cash based to debt based. This status has spread across the board from government through commercial to private finances. Speaking to the private sector, in the past, houses and cars use to be financed. People saved for most other major purchases. Now "Charge It" has moved to the front where the plastic card is used for everything including fast food. Debt has been promoted as a means to enrichment or enlargement of ones assets.

People are being skillful in how much debt they carry. Well not all, some have to resort to bankruptcy to clear the arrears. Debt works till there is a burp in the system such as a economic downturn, sickness, accident, death, and loss of job to name a few.

What happens if there is a credit contraction or collapse? How many have cash set aside for an emergency? I heard that there exists about 1.5 trillion dollars in printed cash but much of that is held over seas in banks, safety deposit boxes, mattresses, etc. That in fact there is only 4 - 5 hundred billion in circulation in country to cover 1.4 trillion in monthly transactions.

If things got bad enough, would banks close credit lines and call accounts due? Then to proceed to empty checking accounts and debit cards? If so where would the cash come from to buy food, medicine, gasoline, etc.? If you and everybody else attempted to pull savings (if any) out there would be a run on cash and banks, ATM's, etc. would be forced to close. Anyone who had cash would hold onto it because they couldn't replace it.

What would we do then?
  

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Re: Debt: A Way of Life
Reply #1 - Feb 7th, 2016 at 12:09pm
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What I see happening is what has happened already in Europe. We will have bank holidays or periods where you cannot withdraw your funds.

And these will be followed by some sort of bank bail in wherein depositors lose some fraction of their balance.

And then we will probably see negative interests.

  

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." J M Keynes

"In the first place, the dichotomy between "theoretical" and "practical" is a false one. In economics, all arguments are theoretical. And, since economics discusses the real world, these theoretical arguments are by their nature "practical" ones as well." M Rothbard
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Re: Debt: A Way of Life
Reply #2 - Feb 7th, 2016 at 12:22pm
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Speaking for myself, when negative interest occurs, my money leaves the bank.

Regarding the bank bail in as I understand it, the area where the bank steps in and takes varies by law from country to country. For example, In the USA deposits are covered by FDIC up to 100K for individuals. Above that the banks are authorized to take a percentage and give you a promissory note or percentage ownership.

Bottom line, savings aren't supported and are in fact demeaned.

  

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Re: Debt: A Way of Life
Reply #3 - Mar 23rd, 2017 at 8:17pm
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Started this thread a little more than a year ago. Now starting to hear the flutter of a few playing cards falling off the house. Sub prime auto loan arrears greater than 60 days have crept up from a little over .8% in mid 2009, the height of the last recession, to just under 6% now. Prime loan arrears have risen from the same starting point to about 2.5%. NADA adjusted price index for used cars has fallen for the past 8 months. This is partially in response to the 18.1% increase in sales incentives being use by the new car companies.

A number of retail giants have announce the closing of a number of stores. Sears and Kmart are making noise of a possible bankruptcy. This will put additional pressure on the retail mall decline that has been noted. I see a result in a loss of jobs, not good news for the Trump Administration. That may also impact the arrears problem for the car loan industry as well as credit cards. The last jobs report I heard had an increase to just under 300K for the month.

Credit card and mortgage rates will increase due to the fed finally raising rates. Borrowed money will cost more. Personal opinion is that now is  not a good time to take on any additional debt. Pay off as much as you can. The markets could experience a sharp, sudden drop.
  

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