Thanks to my humble upbringings, I’m not a big fan of consumer debt. In fact, I’ll go so far as saying that lending too much money has hurt the economy, not helped it.
Many economists and even our President strongly disagree.
When President Obama addressed congress last year, in the same breath, he said that banks not only caused the recession but are also the solution to it:
The flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education; how stores stock their shelves, farms buy equipment, and businesses make payroll.
But credit has stopped flowing the way it should. Too many bad loans from the housing crisis have made their way onto the books of too many banks. With so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses, or to each other. When there is no lending, families can’t afford to buy homes or cars. So businesses are forced to make layoffs. Our economy suffers even more, and credit dries up even further.
Well, I’d like to take a moment to give an alternative point of view. Although I’m not at the extreme of my mom who’s never had any debt, I think the economy would be a lot better off if people didn’t pay an extra 20%-30% for all the stuff they charge.
Imagine what the US economy would be like if everyone had an extra 20% to spend on goods and services? High Tech jobs would be created, people would either spend more on consumer products, or invest their money into companies who would grow these businesses. (In the interest of disclosure, I do work for a high tech mfg company and not a bank. Perhaps my opinion would differ if I did.) I can attest that my family buys plenty of stuff, even if it’s not on credit.
I was happy to finally read an article in The Daily Middle that was in line with some of these thoughts.
So to all you guys and gals out there that are paying down those credit cards: Don’t let those economists convince you that you are part of the reason the economy is not recovering. Instead, be proud knowing that at some point in the future, you’ll actually be in a better position to support the economy because you’ll have more free cash to do so.