November 6th, 2009


Debt: What's Wrong With America!! (Wherein I rant about debt)

What a loaded headline. Now you expect whatever I write to be partisan garbage or a conspiracy theory. Well, what I'm writing about isn't really a conspiracy, more like a systemic problem. From my perspective - as a working-class person trying to find a way into the middle-class - the problem looks pretty big, and pretty obvious. In a word, the problem is debt.

Debt has taken the place of savings. As a result, we now pay banks interest, instead of banks paying us. That conditon, writ large, is enough to build a brick wall right in the middle of capitalism, bleeding the "middle class" down into the "lower class" for the sake of an "upper class". From credit cards to student loans to mortgages, private citizens are wearing an invisible yoke, tethered to the shareholders of banks, whose power now demonstrably outweighs the federal government. ... And the federal government is also, of course, deeply, perhaps irretrievably, indebted to banks as well.

It's not a conspiracy. That would involve a concerted effort to suppress information. The information isn't suppressed at all, instead it's screamed from the rooftops. It comes rolling out of the television, marching out of magazines, and pouring from the corners of every web page. It's the convenience of debt, offering people access to money they haven't saved.

I don't think there is anyone under 40 years of age who remembers the time when a credit card was considered an emergency device - a tool that a household could use to cover sudden unexpected debt, and hastily pay back afterwards. To the vast majority of people now, a credit card is a kind of inverse wallet. The interest fee is thought of as compensation for the convenience of electronic transactions. (Never mind that the credit card company also makes a percentage of the sale itself from the vendor.)

In June 2009, Bank of America had 150 billion dollars of outstanding credit card debt to collect interest on, at around nine percent. (A couple thousand of that was mine.) As of March 2009, total U.S. revolving consumer debt, made up almost entirely of credit card debt, was $950 billion. The average credit card indebted young adult household now spends nearly 24 percent of its income on debt payments. That means that 24 percent of everything they earn is routed through the credit card transaction system, and is subject to the vendor transaction fee (also known as the "discount rate"). So, ultimately, a little less than 1% of everything that household earns goes to the bank, even before interest comes into the picture.

Consider living without your credit card. I bet you don't even know how. I bet you don't even think it's possible. That should bother you.

Actually, credit cards are a relatively small part of the picture.

Remember when people saved up big hunks of money and then purchased land or homes outright? No, I don't either. Those days were gone almost a hundred years ago. But here in California where I live, if you want to buy property anywhere near where you work, you either need to be a member of the upper class with almost a million dollars cash, or you need to take on a mortgage that will claim a huge chunk of your household income as interest for thirty years - effectively turning you into an indentured servant of bank shareholders for almost your entire adult working life. Your way out of this is to spread the debt amongst your friends and family by living together, or amongst strangers by renting out parts of your property; spread the debt out and down in other words. Either way, the bank gets nearly double its money in the long run, and if you can't hack it, it will take the property and the interest you paid, and you will hit the road.

Sound fair? Like it or not, it's the way things are around here. Land is valued for its earning potential, which is paradoxically not measured by what's in or on the land, but by the industriousness and the influence of the people who wish to occupy it, or who occupy the regions nearby. That's the way it works anywhere near a city. In the country, the value may actually be in the soil ... but take any old cube of dirt in downtown Saratoga and airlift it to a valley in North Dakota, and suddenly it's worth 99 percent less money. The difference is bizarre.

In one way, it makes complete sense, and in another way, it makes absolutely no sense at all. But whether it makes sense is beside the point. The point is this: People need to live somewhere. They need to occupy a minimum of space in order to function, and all their options for satisfying that need fall within the extremes of country and city: They can either live where land is cheap, and earn less money, or they can live where land is expensive, and make more. Rent scales accordingly. Unless you have a huge amount of money up front - enough money to match the perceived value of the land you seek - you will either be paying interest to a bank, or rent to a landowner, who in turn is probably paying interest to a bank.

Around here that's a thousand dollars in interest, or more, every month, ... or more in rent. You will pay that money for occupying space near the building where you generate wealth. The owner of the land you occupy will likely have almost nothing to do with the company that employs you, or the institution where you learned your skills. Yet they will reap massive benefits from your need to occupy space.

This is where La and I are stuck right now. We've got the credit card thing sorted out, but now we need to figure out how to escape the vortex of rent and/or mortgage rates that is sucking even more of our income away from us and into the hands of banks. Buying property around here almost seems like giving up - putting on that 15-year yoke of interest payments voluntarily, so the 2% on top of us - with 95% of the world's wealth - can spend another generation skiing in Switzerland and shopping in Paris. Why let them have it?

There has got to be some way out.

If I was one of those people who was already in the middle class, and had half a million dollars in cash to work with, I could buy a house outright, here, pay $300 a month property tax on it while I work, fix it up real nice, and then sell the house and bail right out of the situation with an extra $300,000 when I'm done, plus all the rest of my savings wouldn't necessarily have to be stuck in home equity. They could be in stocks, in an IRA, or even just in a damn savings account.