Debt-Driven Consumption – It Won’t Be Stopped
All of the talk in Washington about financial reform is just that: talk.
The Obama administration wants radical change in the way that financial institutions are regulated. But that will not happen because well-entrenched political interests won’t let it.
As stupid as it seems (and it is stupid), the primary obstacles to reform are that Congressional Committees and Sub-committees don’t want to lose oversight authority over their pet federal agencies. So rather than upset the committee chairs by consolidating bureaucracy and authority in a way that makes sense, nothing substantial will be done.
The same can be said for the second problem: debt-driven consumption. Our nation of out-of-control borrowers and spenders is still driving the bus, and that includes the Obama economic bus.
First, can we all agree that over-borrowing to support excessive consumer spending was a major contributor to our economic collapse? If you can’t agree with that principle, you probably need to be reading some other blog where everyone loves to discuss 0% card balance transfers and credit scores.
What has the government done to prevent the debt-junkies from taking over our economy again?
I say it has done nothing.
Indeed, the pattern of government action has been to kick the borrower-spenders in the pants and tell them to get busy. Let’s review.
First, we have the infamous credit card reform. What did it do? It took away a lot of the pain being felt by cardholders who missed payments or went over their credit limits. It spread that pain among all cardholders. So the over-spenders are now in a better position to do what they do best: buy stuff they don’t need and put in on plastic.
Second, we have the latest version of the first time home buyer credit, courtesy of the taxpayers. We are giving people a little bit of money ($8,000), hoping that will be a catalyst for them to borrow a lot. But that wasn’t enough, as we will see.
Next up is the cash for clunkers which, under the guise of removing gas guzzlers from the highways, is designed to encourage consumers to borrow to buy new cars.
More recently, the government introduced rules allowing first-time home buyers to borrow against the $8000 credit to help with a down payment or closing costs. Sort of like the popular tax-refund anticipation loan.
Frothing-at-the-mouth consumers to Obama: “I want my tax credit and I want it now because I don’t have enough cash reserves to afford this house and if you won’t give it to me then I want to borrow against it and if you won’t do that I won’t vote for you.” Obama to consumers: “Done.”
This is the hard truth: The government is committed to have all of us – from the government on down – borrow and spend our way into the next economic bubble. As long as the bubble re-inflates and stays there through the next presidential election, our “leaders” are content.
What perturbs Mr. ToughMoneyLove even more about the borrow and spend encouragement being offered to consumers now is that our tax dollars are being used to provide that encouragement.
Personally, I would like my tax dollars used to slow the pace of debt-driven consumption. What about you?