Majia here: It is my contention that our debt-based economy is antithetical to widespread prosperity and economic stability. Credit masks declining living standards temporarily, but ultimately enables a shift in wealth from the many to the few.
To begin, let us consider the decline in household wealth that occurred with the great recession:
Americans saw wealth plummet 40 percent from 2007 to 2010, Federal Reserve sayshttp://www.washingtonpost.com/business/economy/fed-americans-wealth-dropped-40-percent/2012/06/11/gJQAlIsCVV_story.html?wpisrc=nl_headlines_Tue
[paraphrasing] In June of 2012 the US Federal Reserve announced that Americans’ wealth plummeted 40 percent from 2007 to 2010. In dollar terms the report argued that the median net worth of US households dropped from $126,400 in 2007 to $77,300 in 2010.
[excerpted] ...The survey showed that fewer families are carrying credit card balances, and those who do have less debt. The median balance dropped 16 percent, from $3,100 in 2007 to $2,600 in 2010..."
Majia here: So, during the great recession Americans lost considerable wealth, particularly in the form of home assets, which are Americans' primary asset.
Americans' debt levels also decreased.
A primary way that debt balances shrank was through defaults.
One would think that a decline in debt levels is a good thing. Think again!
Yesterday, Aug 6, 2012, David Reilly of The Wall Street Journal reported an increase in credit balances. Reilly writes that rising credit balances are usually a good thing:
"A 10th consecutive monthly increase in such credit, which excludes mortgage debt, would show that one of the the economy's main engines is continuing to tick despite concerns consumers have lost confidence" (p. C1)
Majia Here: Reilly is essentially stating that debt creation is a major economic engine in the US.
How can that possibly be a good thing, especially when consumers are not just losing confidence, they are losing the financial capacity to consume?
From Reilly's perspective, debt-creation is good since aggregate demand depends upon it and so economic growth in the US depends upon it.
And much of that growth - i.e. profits - goes to the financial services industry in the form of fees, interest and securitization.
However, in this particular case, Reilly warns that not all debt is created equal and that although 2012 marks a return to the 2008 high of $2.58 trillion in consumer in credit, student debt is "nearing 1 trillion and is now the second-largest form of consumer debt after mortgages."
Reilly claims that "in the short term" student loans "don't juice the economy in the same way as increases in credit card debt."
Excluding student loan debt, outstanding credit is down more than 15% from the 2008 peak.
Majia here: The very premise that debt is necessary for economic growth is at the heart of many of our financial and economic problems.
Although credit is helpful for large purchases such as homes or starting a business, too many Americans use credit to subsidize a lifestyle not possible with their wages.
Credit essentially deflects recognition that many jobs in the US do not offer "living wages."
Furthermore, credit encourages identity formation around consumption, which is represented in terms of democratic consumer choice.
Indebted consumers then become little more than modern indentured servants as they attempt to pay down usurious interest rates and fees that balloon principle.
Wealth is transferred from the many to the few through home foreclosures and other forms of asset seizure due to default.
The rising student loan debacle makes a mockery of the American dream because those who receive these loans cannot be released from their obligations unless they become severely disabled.
Too many universities - particularly the for-profits - have encouraged and/or enabled students to acquire far more debt than they can ever hope to pay back given the dismal job prospects that await them upon graduation.
New graduates best illustrate the problem of debt peonage as they struggle to pay back $30,000 or $40,000 in tuition while working at Starbucks.
Easy credit is a devious charm that pretends to enrich us while ultimately enslaving us.
The banksters who promulgate it are akin to false prophets who promise happiness but offer disappointment and enslavement.