If we now try to define the root of the current economic problems, we need to go back to its genius. The nub of the problem happened when Americans took a cocktail of debt with a chaser of pathological optimism, and many got drunk on both. Awash in credit offers they bought homes, cars, and lots of other stuff they couldn’t afford or need, and hoped for a best-case scenario, in which their home values and rising salaries would take care of it. We could never sustain a strong economy on over 70 percent consumer spending!
Yes, there were plenty of foolish, crooked, and greedy middlemen who played key roles in the meltdown — from the Federal Reserve, which held interest rates too low for too long; to mortgage brokers who defrauded borrowers; to the investment houses that securitized and sold toxic mortgage derivatives; to those who aggressively pushed for deregulation, insisting the free markets would naturally behave themselves. Like, say, a compulsive shoplifter let loose in the Park Meadows Mall.
And now, in a worst-case scenario, the price of living a leveraged life becomes abundantly clear — and its effects go well beyond cash-flow issues.
Debt hurts, physically: Twenty percent of people with moderately high or high levels of debt stress also report more incidents of mental and physical health problems, according to a recent survey. Their ailments range from back pain to migraines, ulcers, and heart problems to depression.
“Debt not only costs money, but it also forces you to sacrifice who you are as an individual,” Thomas Jefferson wrote. “Debt has made me stretch my morals so that I feel I have to hold my tongue or temper my opinion in my life. After all, debt requires us stay to employed no matter what age. It costs people time with their family because they have to work to make outrageous payments. As a result, debt costs us a balanced life.” In its’ essence Debt costs us our time and thus our lives.
And debt can make you feel empty inside, as was the case for Jefferson, who wrote to a friend in 1787, “The torment of mind I endure till the moment shall arrive when I shall not owe a shilling on earth is such really to render life of little value.”
That moment never arrived; he died with $107,000 in debts (about $2 million today).
Jefferson shared similar traits with modern-day debtors, in that he took big risks, was overly optimistic, and remained deeply in denial when things turned against him. “ He was too optimistic about what would happen with his investments, and he got caught. As a result of Jefferson’s experience with personal debt it also reinforced his views on the evils of public debt. “Loading up the nation with debt and leaving it for the following generations to pay is morally irresponsible,” he wrote. “Excessive debt is a means by which governments oppress the people and waste their substance. No nation has a right to contract debt for periods longer than the majority contracting it can expect to live.”
What sort of oppression — as Jefferson put it — will our past government decisions bring? Will savers regret putting money away all these years (rather than living it up on borrowed funds) if the federal government prints money like crazy to pay for the mess and inflation begins to soar? How high will income taxes go? What are the lasting affects of bailouts?
Jefferson and the other founding fathers are probably turning over right now in their graves. This is not the country they envisioned when they laid down their lives.
The real dialogue now is to find real solutions to the real problems. This will instill hope in both American government and business. Political posturing will not keep the American dream alive nor will consumer spending!