A pox on four-letter words
Debt is a four-letter word. Sometimes it is uttered with awe or reverence, but currently it prompts epithets like a four-letter Anglo-Saxon term unfit for print.
This being print, we’ll use a substitute term. How about … foil? For example, debt can facilitate or foil your plans.
Debt is like a dog that normally won’t bite you viciously unless, say, you bite it big time first. That scenario is known as the bottom line definition of news—man bites dog. Currently, the debt dog can nip anyone because so many sank their teeth into it. Debt, public and private, chases us all like a rabid dog.
The debt dog we helped unleash appears bent on nipping the Nevada, national and worldwide economic recoveries right in the bud. Individuals, businesses or governments bloated with debt find themselves foiled. Even debt-laden escape artists will require years to recover because the economy lurches forward only sporadically.
Foreclosures, with which Nevadans are all too familiar, are mini-models of the current comeuppance. Just check the old days of mortgages, more recent history, and finally the effects of our current back-to-the-future period.
Before World War II, few folks owned homes. Lenders were stingy skinflints. After the war, banks loosened up a tad. You could get terms like 4 percent money with a 20 percent down payment if you had sufficient income—enough that debt service didn’t exceed more than a fifth of your net or a fourth of your gross pay.
Then we had a long period of interest rates climbing, falling; inflation raging, receding. Banks and S&Ls thrived or died. Lending ran rampant and houses (assets) were just one aspect. It extended to autos, frills, vacations (liabilities). Awhile back, folks used houses like ATM machines with interest rates attached.
The housing/lending crash now is ending over-leverage or such debt-induced splurging; it is forcing austerity, default, bankruptcy. Bankers act tight-fisted again. Governments re-regulate, after a fashion. We de-leverage.
Financiers and governments also face austerity, sometimes even default. Folks were leveraged at 15 or 25 to one (dollar, euro, whatever), but financiers flirted with 35 and 50 to one, even more. As for governments, their leverage is based on future generations’ productivity and unanchored currencies. They’re betting on the come on credit.
Archimedes, a Greek math wizard and engineer who honed our thoughts on leverage in physics, once said: “Give me a place to stand on, and I will move the Earth.” It works in physics and finance but only until you lose your place to stand.
Problems hit the world economy because so many individuals, financiers and governments had no leg to stand on, let alone place to stand, as debt-decimated repayment ability made credit scarce in 2008. Same song, second verse upcoming?
Whether the economy is on the verge of double dipping and tumbling back into recession is unclear. But the recovery is laboring as world credit markets show fear and flee greed. Europe’s euro is sick and retching; markets fear the disease is catching.
Interest rates look attractive if someone has the wherewithal to borrow, but headwinds are intermittently heavy. Borrowing requires a sure income stream or is a foolish risk. Risk; fancy that, up crops another four-letter word.
Next we offer some somewhat related words on this year’s elections process. Nevada needs voters now and in November to de-leverage their apathy and pay forward their debt to the Silver State, the nation and themselves. Credit such as an investment with yield.
Ignoring elections borrows trouble, and we all wind up foiled.