Wednesday, February 18, 2009

Crack’s evil twin

Over the past few years I have provided warnings as well as proffered my personal view of how this current economic mess started. It was a terse recapitulation of some of the historical events I have personally considered to be the root at the problem. By doing so, it reminded me of the crack epidemic that started in the 1980s. As you may or may not know, Crack cocaine is a form of cocaine derived from powder cocaine. Since it would result in the form of a rock and could be smoked providing a quick high, it dramatically increased the numbers of Americans addicted to cocaine. Based on what I know about crack and substance abuse in general, the effects of Crack are similar to those of another C-word, CREDIT.

Now I am the first to talk about the massive debt, accrued via credit with respect to our US Government, both at the federal and State level. In fact, as of 2008, our total GDP was near or around 13 trillion, however our combined credit market debt was about 53 trillion. This is foul, but even worse are the habits that we regular old citizens practice. America has gone into debt unlike any other country.

It seems that we are no longer citizens, but rather consumers. Looking at credit cards alone, on average we owe about $971 billion. This is about, $3,100 of credit card debt per person, or $8,299 per household. This doesn’t even include non-revolving debt, like loans for auto, and other things. Our non-revolving debt is estimated to be $1.617 trillion, or about $5,200 per person ($13,800 per household).

To put it simply, we spend more than we save and in fact, our savings nationally have declined and at a negative level (about 2.0%) for the first time in our modern era of government. This means that if as a country we have negative savings, that we supplement what we don’t have from the surplus savings other nations have abroad, for other countries save more than we do in general. This is a result of several factors, namely folks living beyond their means. Just as our government borrows to hold lavish wars and purchase debt from big Wall Street banks, so do we the American people.

I can say the debt that we have amassed collectively has seemed to increase at a staggering rate since we came off the gold standard in the 1970s and again because of poor behaviors practiced across all segments of our economy. From credit cards, to the collateralization of debt, complex swaps and derivatives and other toxic papers.

At this point in time, at the corporate level alone, we have the most corporate-debt defaults, by dollar amount, in history. Some have even speculated that companies are poised to default on more than $500 billion of corporate bonds/bank loans over the next few year’s years. And why? Well I know no one asked me but it is simple due to people at all levels as stated earlier not being economically responsible. In 1991 we saved on average 7.3% of our income per household. As of 2007, this had declined to about 0.6%. We cannot continue this behavior for it means we will be living off of the surplus saving of other nations the likes of China and Japan. Politicians can only do so much, if anything about our current economic prospectus. Again it is on us. Because the way I see it, we may as well be smoking crack, for credit to me is its evil twin, and just as damaging and addictive. So Mr. Obama, you too need to put that pipe down, or at least tell me who and where you borrowing all this money we dont have from.


Tiffani said...

Yeahh, this is definitely a serious problem. Credit really has become the new crack. I saw this at college. I knew of people who claimed to have had credit cards with $5K limits who barely had a job and then later came along and laughed about how they'd charged a bunch of crap, but couldn't pay the bill. I was able to get a credit card on the meager pay of a campus job and sometimes I wish I hadn't been so eager.

Either way, you're definitely right. Between credit, all of these crazy financial instruments the quants on Wall Street have cooked up and everything else, we'll be dealing with our conspicuous consumption and everything else for a while. Blah. :(

Ingie said...

Like I have said before on your blog, I have zero sympathy for those living beyond their means, and espically those living almost beyond another persons means too. We have become serious society of consumers and feel totally entitled. Our country would not be in this situation if as consumers were more responsible. You should know that 80% of your income should not go to paying your mortgage. I dont care who is handing what out, we have to take responsibility for our own actions. I dont feel you deserve a handout for your ignoraance. I play by the rules and do what I am supposed to. I go without the items I would love to have, so I dont have to put them on credit. And now I have to pay for your greed and disregard for common sense. I hate to be harsh, but I think more things and people need to be allowed to fail. Where is the reward for playing by the rules?

Anonymous said...

Indeed credit is the new crack and is showing itself to be equally as destructive as the original crack. Folks are hooked and don't know how to lay that pipe down. Of course the credit markets freezing up is forcing some to get off that credit pipe and is one of the reasons IMO nobody is spending...they can't afford to.

For many folks without access to credit, they are forced to live within their means and living with our means is revealing the fact that wages have not kept pace with the true cost of living.

Red Snapper said...

Mornin All-Mi-T!

Credit is the new crack indeed and it is just as addictive and harmful. My question is does the concept of living beyond one's means depend on the perception of the individual or those on the outside looking in? Yes some people choose to make bad financial decisions while others are merely uneducated. Should one be faulted for their ignorance? IDK. I do feel that saving is the choice of the person and should not be dictated. With inflation and the cost of living on the rise I can understand why some feel they don't have it to save. As soon as it's put away you have to go get it. The rainy day is here and has turned into a mansoon in this

With all that is going on I still remain optimistic, peaceful, loving and kind. Positive vibes are the key for me.

Good usual.

Tee aka The Diva's Thoughts said...

Although credit is very necessary, we need to be responsible with our borrowing and clearly we are not.

GC (God's Child) said...

good one
I was lucky in college. The only people who would come to our campus was the credit union down the road
so while we all signed up for a credit card, many of us also started bank accounts. The limits weren't that high and we also had someplace to deposit our measly checks after work study took it's share.
I came out of college with some debt, but not the thousands like some people I talk to.
It's not right. Credit Card companies should not be able to run roughshod over us. We need to put our foot down and educate ourselves, our children, and each other.

memphiz said...

crack compared to credit classic. Credit/debt is no joke out here in the streets. I have seen what it can do to people. Especially people who rather buy things than pay there bills. Then they want to complain and act depressed when they don't got no money. But let me stop before I approach the soap box.

urbanknitrix said...

They will get the money from the usual suspects, Saudis, Japan and the next super power China.

Amber-Alert said...

a tad bit extreme comparison BUT at this point in time people dont really have a choice. if u arent making enough money ur going to start relying on credit...its a vicious cycle but its life. times is gettin hard. i still use cash for everything but i kno im not the norm...

T.Allen-Mercado said...

Great analogy and points.

rainywalker said...

The real question I agree, where is the money coming from? They took us off the gold standard and most people don't understand the money in your pocket isn't really worth anything. What can you turn it in for, nothing! While the Senate and House run around like a nine pecker billy goat.

A.M. said...

Yay, I've finally made it back around to your blog, and I love this post. I still have to go back and read the one you suggested on valentines day.

But anyhow, you are certainly right. I'm 21 and already have credit problems. My credit is in good standing and all, but it is getting out of control. Therefore, this year I've made the decision to put the credit cards down and have only been using my debit and making payments to those cards.
Everyone should try it. I feel so much better about my credit since I've made the decision to stop spending money I simply don't have.

Lovebabz said...

Interesting as always.

NightFall914 said...

I wouldn't call it cracC so much because if used wisely credit can be a powerful tool. Whereas no matter how you use it a cracChead is of no positive use to anyone. lol.

Either way its clearly bacC to basics.I big economic reset button has been hit. Hopefully things can get straightened out.

Garth Sullivan said...

don't forget it's sold like crack too... everywhere and regardless of whether it's good for you.

Torrance Stephens - All-Mi-T said...

Tiffani s
sory hon to give u the blues

i agree, business and banks included

well said and even more is the truth in what u say

Red Snapper
yea cause many folks are not taught fiscal responsibility and think having things is more important

Tee aka The Diva's Thoughts
yep, i started my own biz with 60k of my own money - no loan - i saved

GC (God's Child)
only have a charge card - amex

yep and thats an emotional addiction also great point

I know i just want him to tell us u know transparency

i think the devisation crack wreaked is not as half as what credit has and will continue to do

thanks hon

yep such is the nature of fiat money

sorry to hear that but a good plan and i thought u aint love folk no more

thank u maam

like i said before y take a loan if u patient enought to save

Torrance Stephens - All-Mi-T said...

Garth Sullivan
dang great point how did io over look that?

Rchelle said...

wooo, dont even get my started on credit. like most college students i have a student credit card for those just in case days and while sometimes I wish I never had it, it did come in handy when the transmission in my car went. credit is IMO a gift and a curse and only those that actually have common sense should be able to use it. That means those that live within their means.
my lil fam we dont have many luxuries,we dont have cable, we share a car etc. but were saving up so that we can have more.

nicki nicki tembo said...

Like you keep pointing out it's on us. Instead of weaning ourselves off this decrepit system (or not taking suck to begin with) more latch on, with extreme vigor even. In our state of delusion we keep this fallen house propped up.

Pamela said...

I like how the economists are pissed that people are saving more, because spending stimulates the economy.

Kiarah C. W. said...

Ooooh you're so right. I'm not even gonna play innocent because I know I'm one of those people. I am paying it off right now and in about a year I will be responsible for student loans too. It makes me said because I feel that I have learned and I am paying for my mistakes but there are still 30, 40, 50 and older people that are continuing the same patterns over and over again. Bankruptcy and just the whole mess is out of control. The recession has truly made me feel more accountable for my debt and I feel that I'm apart of the problem. I'm doing everything I can to pay our government back. I hope it has inspired everyone else.

Torrance Stephens - All-Mi-T said...

ok baby jjust 4give me cause once u get started........

nicki nicki temb
dust to dust and ashes to ashes

i know and funny to me is that folk think im an economist lol

Kiarah C. W.
sounds like thats the plan just do it folk

Anonymous said...

Great post. At one point in my life, I too was guilty of living beyond my means. Fortunately, I was smart enough to realize how stupid that really was, paid off my credit cards and got out from under the heavy weight of credit card debt. The feeling of liberation was tremendous.

amourra said...

AGREE 100%

C.O.D - CASH ON DELIVERY, whatever happened to that?

Folk said...

D@mned you always on point my friend. Always on point. Credit is the crack of middle America.

Keith said...

You aint never lied Fam. Credit is like crack. I have two credit cards myself and I hardly ever use them. When I do use them,I pay the
entire balance..I pay for everything with either cash or a debit card..If I can't afford it..I don't need it.

As for America...We are in hock to China..That's our dirty little secret..Not so secret..some folk
who watch more than American Idol
know it...but don't get me started
on that.

Linda said...

As if crack NEEDED an evil twin ;)

But yeah, you're right.. credit is probably even worse than crack..

Greetings from the netherlands, where crack is still available in the grocery store. Ok, I made that up :P

Erin Michell said...

I agree that credit can be destructive if abused and not used responsibly. It's like other things in life, good in moderation! Some people are so in need of having "things" RIGHT NOW, they forget to look at the bigger picture or focus on long term goals. Immediate gratification is not always a good thing. Good things come to those that wait and that can afford to pay without credit.

Angel said...

People need to be taught to be sensible with thier borrowing and live within thier means...simple,,

Craigjc said...

Truth be told, I'm a crack fiend (as in credit). There, I said it. I'm working on it, but it ... just keeps ... callin' me.

Torrance Stephens - All-Mi-T said...

wish more of us americans were like that and thank u

went out with Lay-A-Way

thanks folk

you can what ever u feel here keith, we have to teach each other by example and our experinces

LOL u are so silly

Erin Michell
seems as if working for and delaying gratification is dead and gone

true, so true


LadyDee - Brownlady Beautiful! said...

DAMN! You went in! Good stuufff

KevinsTeeTee said...

Credit is no joke. I remember when I was in college, they would have booths spaced out among campuses luring people to sign up for a credit card. They would offer them free t-shirts, gift certificates and other goodies. It's amazing how when something "free" is thrown into the mix people will take the bait.

I don't understand nor do I empathize with people who live beyond their means. I have relatives who are like that and are always trying to borrow money so they can make rent or pay their car note.

I think before kids graduate HS they should have some sort of fiscal responsibility class that they have to take in order to receive their diploma. Because kids don't know about finance they just see a credit card as free money and don't realize that they have to pay it back.

Adults need the class as well because I work with people who want to give the impression they're rollin in dough when they're barely making it. How can you call yourself broke making six figures? C'mon now..!

Ghetto_Philosopher said...

Our economy is predicated on spending so as to that credit is the economy's lifeline. Think about it, why would anyone have preached fiscal responsibilty, when credit and massive spending allowed us to pad our economic stats and pretend that all was well. Well all wasn't well and isn't well and the system done broke. How do you suggest we fix it?

Kit (Keep It Trill) said...

Fictional, electronic money aka "credit".

T.C. said...

I definitely am feeling this one, especially since i personally created a LOT of debt for myself in my early college years...that i am finally about to be done with but the point is...if i could have SAVED that money i would be SOOOO far ahead of the game its ridiculous...but noone told me parents had no real sense of money management and that starts at home at a very young age...but lesson learned that i WILL be passing on to all the youngins that come behind me so that they don't go down this road...if you aint got it don't buy it

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