BLACKWELL: Addicted to debt

Let's not forget our government. If anyone is addicted it is our politicians. Everyone talks taxes and tax cuts but noone talks about spending. Spending causes debt, not taxes. When are we going to have a debate about spending cuts? When are we going to cut out the congressional golden parachutes?

How did we get where we are? Mass production requires mass consumption. Run out of consumer dollars, you run out of dollars to power your economy. Factcheck. org ran the numbers. For households where the head was under 65, working families, real income has dropped under Bush. The site says: "..Inflation-adjusted income goes from $51,039 in 1992 to $58,555 in 2000 to $56,545 in 2007. That comes to a drop of $2,010 during the Bush administration and an increase of $7,516 during the Clinton administration. (Note if you want to do your own calculations at home: Pull them from Census reports from the respective years, then use the more technical CPI-U-RS inflation calculator found here.)" I would wager that the Bush family income decline has continued to decline during 2008. When your income drops, you borrow more to maintain your standard of living, until you run out of credit. That is where we are now.

Why is it that we are addicted to debt? Because our whole financial system is set up around it, although it was not always this way. Money used to be a store of value. Look up inflation over the entire course of our country's history. It was relatively flat since the creation of the US constitution, until the Federal Reserve was created (excepting times of war). See Bernanke's Macroeconomics textbook for a chart and details. Ever since the privately-owned Federal Reserve took control in 1913, money has been an debt instrument. The claim that the Federal Reserve is necessary and increases stability stands on its head when you look at the Great Depression, stagflation in the 70s, the 1980s crash and stagnation of the early 90s, and today's mess. Yes, you can blame people for over consumption, but you have to look at the root cause. In today's monetary system, savers are suckers. You have to chase high annual returns to get ahead or just break even. Therefore, people are rewarded for pushing paper, getting returns, shoveling debt, and signing up for debt. People who work hard and save are rewarded with inflation and more hard work. This is bigger than both parties, and hopefully people will wake up to it before it's too late to change. It will not be helped by giving a blank check to the people who perpetuate this system.

Just want to thank you Ken, for speaking honestly and rationally. This is precisely the message we all should have heard and taken to heart YEARS ago.

It is true that "many financial executives exercised poor judgment, making reckless decisions." It is also true that there is plenty of blame to go around. Much of that blame lies with the same federal government that is now forcing another "fix" down our throats. When government oversteps its constitutional authority, expect trouble. After all, those constitutional "chains" were placed there by our Founders for a reason - to limit government power. Many bad home loans were made by financial executives to people who could not afford those homes because lenders were forced to do so by federal laws like the Community Reinvestment Act and the National Homeowners Initiative. No power is granted to the fedgov by the Constitution to force lenders to make bad loans. And no power is granted to the fedgov by the Constitution to "bail out" those lenders. Thomas Jefferson reminded us: "In questions of power then, let no more be said of confidence in man; but bind him down from mischief by the chains of the Constitution."

All of you who have commented have made very good, very valid points. With all due respect, however, I think that you are missing an important point of Mr. Blackwell's article. You and I are the root cause of the problem. Our inability to find "contentment and happiness in ways other than always needing to lunge after something newer, better - and more expensive" has led us astray. Don't get me wrong, I am perfectly willing to let the people whose decisions led directly to this mess suffer the consequences of their actions, but look in the mirror with me for a minute. Do you carry a balance on your credit cards? Have you overdrafted your checking account recently? Do you know what "retail therapy" feels like? Do you have a car payment? Are your student loans huge compared to how much people in your field can expect to make? Do you have an interest only mortgage? Is your mortgage or rent payment more than 25 percent of your salary? If you lost your job tomorrow, could you live for 6 months on your savings? If you answered yes to any of these (I did), then perhaps we should be less concerned with who to blame and more concerned with changing our fundamental approach to finances. Like Mr. Blackwell said, not so exciting, but badly needed.