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Bank of China Credit Card: America’s Love/Hate Relationship with Borrowing and Spending

10.22.10

Why is it such a huge, vital, cut-all-spending-now situation with regard to our nation’s economic woes?

I get it: being in debt is bad. You end up paying a fortune for something because of all the interest that you then owe to your lender. (Trust me: I have credit cards, I know how it works.)

And there’s a lot of talk about how we’re “running up the credit card” with regard to the Iraq and Afghanistan Wars, the bailouts, and TARP. But it’s not really on a credit card. Right? We don’t have creditors actually knocking down the doors of the Capitol Building.

I’m being snarky here on purpose because people (myself included) talk about the debt as if we know to whom this debt is owed — China, right?  My point is that the way our government spends money it doesn’t have is different from how you or I spend money we don’t have. And the repercussions are different.  I don’t imagine that Hu Jintao is on the phone every month calling up President Obama saying, “Yo, Barry, you didn’t make the minimum payment last month of $233,588,838.35.  Do you know when you’ll be able to pay that?”

Also – we’re in a society that is based on borrowing. The reason our economy is still sluggish is because there isn’t much lending going on to small businesses (some banks being very tight with their lending practices and people not wanting to borrow money to expand/start their businesses at this point in time), therefore not many new hires.  (Well, it’s a reason.)

But, it’s rather bipolar to want the economy to get going through increased spending and borrowing while at the same time blaming spending and borrowing as the reason why we’re in this whole mess to begin with.  So spending and borrowing is both good and bad — but right now, all we hear about how bad it is to spend, how bad it is to keep borrowing.  No wonder the economy is still moving at a snail’s pace!

I have no answers.  I’m merely positing issues that I’m seeing and issues that I’m dealing with in my head.  I would love some clarity on the economics of this because that’s one subject on which I’m not very knowledgeable.

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2 comments

  1. Ryan, the reason businesses are hunkering down, as well as consumers, is one word FEAR. Businesses are afraid of how the massive run up in debt, and the massive bills that have passed without anyone knowing what’s really in them have created an anti business and anti consumer environment.

    This is the KEY reason the economy is stalled. People are afraid to hire and afraid to spend.

    The UK is coming to it’s senses and is on a tear to reduce gvnt spending. I predict that they will come out of this recession much faster than the US and the jobs market will improve much more rapidly than here.


    • That makes sense — fear is definitely the reason. People are afraid of the economy getting worse, so they’re sitting tight.

      But it’s mainly perception, right? I mean, the stock market crashes because people are worried that the stocks will crash or because some news makes them think that things will get worse so everyone sells and then it crashes. (Okay, extreme oversimplification here but you get my point.) Same with our economy. People were spending and borrowing like crazy before the crisis hit in 2007/2008 even though the debt was rising and rising and rising. Why weren’t they afraid then?

      Fear. Exactly like you said.

      And who is ratcheting up this fear? I mean: no doubt, fiscal responsibility is in order — some cutting of entitlements will need to happen and it will be very tough to do, some raising of taxes most likely, as well — but even more importantly will be regaining the public’s confidence in the economy. And you can’t expect that to happen when everything in the news – especially from the conservatives – is all doom and gloom about how much in debt we are.

      Yes, the UK is reducing govt spending. But look at what they’re cutting — the tough stuff that no one on either side of the American political divide is even talking about cutting: defense. Find me a Tea Partier or a Republican who’s willing to chop our defense budget like the Brits and I’ll be more inclined to believe that the conservatives truly mean fiscal austerity when they say it. (That’s why I don’t have much faith in the Tea Party and why I attacked its intellectual honesty before.)

      The problem is no one wants to truly stop spending. When it comes down to finding out just what has to be cut, even people who want to cut spending in theory, want programs that don’t affect them to be cut — hence why it’s going to be a huge political risk for a bit still for anyone who tries to trim Medicare — and defense… well that’s another story.



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