Credit Crisis Is Good

I have read a lot of commentary about the pending $750 Billion Bill to “fix the frozen credit market”. Most of the commentary seems to be targeted at either the unfairness of bailing out Wall Street or that it is really Main Street that will suffer if the bill is not passed.

Total debt dollar value: today vs 1957

Total debt dollar value: today vs 1957

My problem with this analysis is that it ignores what I consider to be the fundamental issue. The credit markets need to be much more restrictive than they have been for the last two decades. Also, I simply do not believe that the credit markets will become completely frozen — at least not for very long. Much more likely is that it will simply become more difficult to get credit, which is a good thing. Admittedly, it may become a bit *too* difficult in the short term, but that is not likely to last as lenders look to find some way to earn at least a modest return.

The chart I’ve included here is from America’s Total Debt Report, an analysis put together by the Grandfather Economic Report. There are many other interesting charts in that report, along with a good description of the situation.

I have heard a few commentators complain that we need this bill because we cannot quit our debt addiction cold turkey. The problem I have with that viewpoint is that debt begets debt. Ask any financial planner how to get out of debt and step one is stop borrowing.

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  1. #1 by Ken on October 2, 2008 - 4:14 pm

    While in principle I don’t disagree with your last statement there are certainly instances where someone is in such a bad state that they must borrow just to survive. The planner can still work to try to find better terms for the debt and hopefully help find some path out of the situation. For the current problem I’m guessing a lot of politicians are viewing their future careers in exactly that light – the problem is they won’t likely really pursue the second step very far once the population’s attention is distracted by other things.

    I have to say the report from the first link is pretty gut wrenching… It’s hard to have much optimism of things getting any better – or even just staying the same.

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  2. #2 by whall on October 21, 2008 - 9:30 pm

    Can I pay for my financial counseling with a credit card?

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  3. #3 by Ren on October 22, 2008 - 12:04 pm

    Ken, the problem with “borrowing just to survive” is that it is unsustainable. Plus, I would think that it is rarely actually to survive; rather, it is to survive without making as many sacrifices as might otherwise be required. And that is fine, but only for a short period of time, and only if debt wasn’t already being used to prop up lifestyle.

    Wayne, sure, just three easy payments of $19.95 (plus S&H). Operators are standing by!

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  4. #4 by Ben on October 22, 2008 - 1:26 pm

    Ren,

    What was that number? (So I can pay for credit counseling with a credit card.)

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  5. #5 by Ren on October 22, 2008 - 1:30 pm

    Ben, 1-800-426-3862. (Hint: 4-26-3862)

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  6. #6 by Ben on October 22, 2008 - 4:15 pm

    Don’t be so hard on yourself.

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