Living in the Credit State


The best way to fix the US financial crisis is to start deprogramming our minds from the Credit State. The Credit State is that which we created beginning with first time we used a credit card.  We learned that we can actually buy something when we don't have the money for it.  What a wonderful concept.  Or is it?

There are of course consequences to using credit.  There are interest rates, another bill to pay, and the worse part was that there was always more credit.  Now that is changing because even credit card companies overindulged in that practice and are collapsing.

Unconscious spending leads to many bad habits and puts more and more of one's financial life in the hands of creditors.  And we do all that for what?

Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. (Tyler Durden, in Fight Club)

The character Tyler Durden points out the ludicrous of our Credit State actions.  What good is all this stuff?  Do we really need all of this?  Wants and needs are very different things.

My mother, rest in peace, used to have a saying that she got from her mother.  "If you earn three dollars, spend two for what you need and save one."  Save money?  Now that's a novel concept.

But while I think there is a personal finance lesson in this crisis (and for many it is a devastating lesson), this is also something that is a systematized process to benefit credit companies and those who they support and who support them.

Here's part of the system:

  1. Credit card companies offer credit cards to college student.  Credit companies make deals with universities to sell to students on campus.  Credit companies also advertise on Facebook to reach that same demographic.
  2. Companies reel you in with a low interest rate but if you are late with a payment, they can then raise your interest rate.  This could double or triple your rate.
  3. Other parts of the Credit State now kick in.  If you have a lot of debt then this same credit company may send you offers for income protection services, in case you happen to miss a payment then you'll still be covered.
  4. If you are late again then the companies will put you in a default status where you may pay 25% or way higher in interest.
  5. Companies now sell you data or have another "arm" of their business where they begin to send you literature on consolidating loans.
  6. Meanwhile lobbyists for credit companies are pressuring politicians (credit companies are some of the biggest campaign contributors) to push for anti-bankruptcy laws so that they can get paid before someone files for bankruptcy

So you get the point.  Once you get that first card or someone puts you on one of their accounts, you are now just another dot in the Credit State.  Credit companies keep connecting the dots so they can squeeze as much money as possible and we end up in debt.

The bad news for Big Banking is that housing markets tanked.  Housing tanks, which means home equity lines dry up and no one has any more credit from which to draw.  Multiply this by several million and here we are.

So yes, there is the issue of personal responsibility but we also live in a Credit State and it is a system from which we must break free.