Stimulate MORE Debt

Nearly everyone has heard the saying, “You cannot borrow your way into prosperity” - It's certainly one of my favorite phrases. Yet, despite how many times it's said, despite the number of reputable people saying it, Americans continue to borrow, borrow, and borrow whenever they see an opportunity.

The federal government's cash for clunkers program has been touted as a huge success for auto makers and participating dealerships; and it has successfully removed cars that were paid for and replaced them with cars that now require financing. Good job federal government, you certainly lead by example. Did you know we taxpayers have paid over 7 trillion dollars in interest alone since 1988 - 7 trillion dollars! If you're like me, I'm sure you could think of a lot of other programs that money could have been used for instead of throwing it away on interest. The topic of debt and it's aggregate costs are an enormous subject and I will spare you the nitty gritty details.

Some financial advisors try to present the argument some debt is good. They'll show a basic mathematical example of if you have $10,000 earning 4% interest and you can get a car loan for less than 4% then you'll still show a NET GAIN. These are financial advisors trying to make you feel good for not owning anything; and I don't want you to feel good for nothing, I want you to feel good for owning something.

The bigger picture leads to the problem and you have to look no further than the last two-years to understand what I'm about to explain. Millions of Americans live paycheck-to-paycheck. Between their credit card debt, car debt, big house payments, financing on other toys and assets at the end of the month there just isn't a whole lot of cash to go around. When things get tight either because of unemployment or just reduced bonuses/commissions, we turn to our “emergency fund” to maintain our great credit. Slowly and surely our emergency fund draws near to nothing. Creative people will start using additional credit lines, pulling funds here to pay creditors over there, and of course, this soon finds it's limits too... Some may start to liquidate stocks and other assets; which in a down market is just down right painful and a costly financial strategy. I know these things because I have interviewed hundreds of people who have done exactly as I have just described here.

Five years ago, many of those I interviewed could have owned outright their homes, cars, toys and other assets – yet they choose not to use it. Now, if you're paying attention the common rebuttal to this example is, “if they used there cash they wouldn't have had an emergency fund or stocks/investments!” And if you said that (or thought it) you're absolutely WRONG.

There are two dominate reasons this notion is incorrect. For one, the REAL costs associated with debt; interest easily adds in to the thousands of dollars annually and if you're like most Americans you see more and more debt each year, not less and less. This equates into thousands and thousands of dollars just wasted. The second reason this notion is horribly incorrect is based on the assumption that consumer behavior remained the same – when it absolutely would NOT. Most Americans, even if they have the money readily available will pass/wait on unessential purchases when using cash versus credit. This is the reason why department stores try so hard to get you to complete a credit application, they know that statistically shoppers WILL spend more via credit than cash. Now, think about that. You spend more then you really intend to using credit and then on top of that, you spend thousands upon thousands of dollars in interest payments to purchase items you really never intended on purchasing. And you want to tell me this is okay? And through this strategy you'll reach a comfortable existence?


Debt is fine when used responsibly; the challenge we have is very few Americans use debt productively or responsibly. In a time of economic concern, increasing your long-term monthly responsibilities in a time when the only sure thing was the paycheck that already cleared the bank is a scary proposition. During this time, American's should be reducing their long-term monthly obligations, increasing their cash positions, and perhaps even considering increasing their positions in productive assets (investing in domestic companies).

Always remember, “You cannot borrow your way into prosperity” - so stop trying.

~Frank Carlton
http://www.helpubuytime.com