Tuesday, April 22, 2014
The debt trap
Not for us peasants, but for the big banks and the powers that be.
Let's go back to the housing collapse of 2008. Not exactly happy times. What was one of the big triggers? Balloon payments. People got loans that they could just barely pay. The rates were set to increase in the future. The assumption was that people's incomes would go up and make the higher rates affordable. For most people, that didn't happen. Boom! The bubble burst.
It's just guess work, but perhaps one of the reasons interest rates have been artificially low for so long is that they really can't raise them. What's left of the economy would implode. Of course, keeping rates low has risks too, so the big boys are stuck.
There are lots of loans out there that will never get paid. Student debt is one of big ones hanging over the system. I suspect default rates are going up, but hard numbers are difficult to get. There are rumors, however, that things are really bad.
Credit card debt is very high. When someone starts to have difficulty paying, rates go up, making it even harder to pay.
What's the big threat that creditors hold over people's heads? If you don't pay your bills it will hurt your credit rating. We are supposed to think a bad credit rating is worse than cancer. Here's the thing: what's a credit rating good for? Mainly it's to allow someone to get in even more debt, and they are already having debt problems.
Imagine if everyone just said the heck with it and stopped paying on their loans. Everyone. How long would the system last? The whole world wide financial system could be broken in a week. They should worry about us, not us about them. Why should we be concerned that banks were foolish enough to loan us money? It's their bad business decision, right?