House of Credit Cards

“When rich speculators prosper
While farmers lose their land;
When government officials spend money
On weapons instead of cures;
When the upper class is extravagant and irresponsible
While the poor have nowhere to turn;
All this is robbery and chaos
It is not in keeping with the Tao”

- Tao Te Ching

The Great Depression and subsequent boom of new industries changed the economic realities of many people. Some lost their once secure fortunes in the collapse and lost out to new entrepreneurs who prospered in new industries. Some of the wealthy were lucky and their fortunes survived. But if they had been scared of ever having to face economic reorganization in the future, they might have conceived a way to preserve their wealth through any circumstances.

If the banking industry wanted to make itself indispensible and ensure that its’ institutions would survive and never be replaced, they could do this by manipulating the way our financial system uses currency and credit. They could encourage a shift in our economy from a currency based system to a credit based system. They could make capital less available in general by moving funds offshore. They could get everyone used to operating on credit rather than currency. They could funnel money out of circulation by putting it into commodities, real estate, or foreign markets. They could influence the government to loosen regulations so they could do all of this easier and without oversight. They could make sure that our entire economy was so dependent on credit just to function day to day, that if they were ever in trouble, the government would have to keep them alive or risk having the economy grind to a halt. I’m not saying they did this, I’m just saying if they wanted to create such an insurance policy, this would be a way to do it.

Whether the banking industry intended to make us dependent on credit or it was a side effect, we are beginning to see the enormous price we will have to pay. The mortgage crisis has shown light on the underlying and more serious issue of our continued reliance on future resources to pay for what we use today. The house of cards is built on a house of credit cards. I didn’t realize how much our economy was dependent on credit until the bailout was proposed to restore solvency to the financial sector. I knew that credit cards were a problem for many Americans who were racking up more revolving debt than they could get out of. I knew that loans were necessary for businesses to start or expand, for students to go to school and pay their living expenses, and for people to purchase a car or home, but I had no idea that so many businesses use credit to cover expenses and payroll on a regular basis. I was under the assumption that businesses operated with cash on hand and only used credit for expansion. If my business couldn’t make payroll and cover day to day expenses without credit, I’d be concerned about the stability of my enterprise! The credit system, in fact, operates throughout the world now in the global economy and all the markets are dependent on this credit and banking system. The House of Credit Cards is really a high rise. Continued revolving debt can’t just be handed off forever without eventually crashing down under its’ own weight.

It baffles me that so many supposed experts thought this credit dependent economy was a stable situation. It seems obvious that this would be a recipe for disaster. You’d think this was common sense, but you’d be wrong.

There is a correlation between credit and money in circulation. Less money available will inevitably lead to increased reliance on credit. Over time, the population increases and prices go up, so we have to add money to the system somehow to continue to have enough to go around. We do this is by getting loans from China and the Federal Reserve, but theoretically that money has to be paid back and so that doesn’t add money unless we never intend to pay it back, which is a whole other discussion of what happens then. Anyway, if wealthy people keep their money in holdings, or move it into offshore accounts, foreign markets, commodities, or other investments, instead of spending it in America and keeping it circulating, then there’s less money available and credit spending goes up. How do we compensate for the losses and increased demand? Looking at the issue from a global perspective does not help. Prices still go up, population still goes up, and demand goes up as more countries seek to improve their economic standing. If stock markets and commodities continue to rise in value and investments continue to return interest, those increases must come from somewhere, either from other countries losing wealth or it must be increased artificially.

Our financial system is no longer based on sound economic principles for these and many other reasons including oil dependence, trade policies, spending habits, health care, social security, and so on. It doesn’t take a financial genius to see that we need more than just bailouts, regulations, or stimulus packages, we need complete restructuring. We must fundamentally change the way we think about money and exchange. We must find a way to achieve sustainability in our economy and our use of resources, both natural and manufactured. Until we do this, we will not have stable financial systems here or anywhere in the world.