Doubts About Debt

I attach what I consider an absolute must read from Mish Shedlock, who I follow closely.  Like many other sites I visit I do so more for the factual information than the slant provided as I like to form my own point of view from facts.  In this case, Mish is dead on and his earlier points in the piece talk about debt at various levels, which I view as one of the major issues we face today and one that Trump's policies will exasperate, perhaps significantly.

https://mishtalk.com/2017/02/10/impediments-to-growth/

Perhaps it is old school, but I was raised being taught that the prudent financial thing is to save what you can early on so that you have the resources later to do the things you want.   Saving money was always in my childhood considered a good thing that everyone should do.  I started a savings account when I was like five years old and used to love to go to the bank and put in whatever I had, sometimes as little as a quarter.  Now I might add that my aunt worked there and always gave me a sucker when I showed up, so I had an ulterior motive, but I was saving.  And I guess I should add as well that the few hundred I saved in childhood was blown on one Spring break in college, but still at least I had it to enjoy.  I certainly did not need to go into debt on a credit card to enjoy Spring break, which made it a tad more relaxing.

Yet Keynesians like Krugman and Summers insist that savings is the devil and debt is salvation.  I think they should both come out and tell the world how much debt they have in relation to their incomes.  Do they know what it is like to struggle to make ends meet, to scrape together enough to make the minimal payment on a credit card, to be facing rates of interest on credit over 20%.  Seriously?  Now I admit I have a mortgage (refinanced at 3%) and I did a home equity loan at 3.25% last year, but the home equity I could pay off tomorrow with savings and would but for the low rate.  The freedom from the stress that I am not buried in debt is liberating and something everyone should strive to achieve. 

I know a vast percentage of people really do not have that luxury but I also know there is a vast percentage of people who can save if they want to but who choose not to do so.  They want to enjoy life now, not tomorrow.  They choose not to save and instead spend all they have now and their future earnings, in debt, for years to come.  The government and corporations are doing the same and this is a recipe for disaster.  No, the house of cards may not fall tomorrow or this year or next, but we have to at least stop building the house higher and perhaps start dismantling it before it falls.  Still, there is clearly no desire or plan to do so on a national scale or on a corporate scale or individual scale.

And what really does debt do for the economy?  It simply pulls future spending forward to today.  Eventually the Devil is owed his due and you have to pay for crap, you have to pay the debt.  Adding interest on top of the price tag only helps those charging the interest.  It is a drain from productive use of money and it is a stupid thing for anyone to advocate - in my humble opinion.

On a personal scale for my many, many readers (both of you), note that rates are on the rise and it is a wise time to reduce debt, increase savings and prepare for the next recession.  At least if you have some savings, when the recession comes you have the ability to take advantage of it.  Either way, anyone with low to no debt and savings I believe will thrive in the years to come.