Credit is the Lubricant for the Wheels of Business

in Credit, Debts

Unfortunately Credit and Debt is the opiate of the consumer (to paraphrase Karl Marx, and his views on religion). As long as consumers continue to use Debt, business will continue to rely on it (and the associated expanded spending).  Witness the current economic situation where consumer credit is the lubricant of the economy.

Live Within Your Means ?

Forget that, Grandpa! No one needs to live within their means, when interest rates continue at these historic lows. Next thing you will be telling me is that interest rates will go up? Concepts like house poor seems to have disappeared from our money vocabulary.



Live Now

Interest rates are down now, credit is easy now, so the economy seems to be saying, live now, pay later. You only live once, after all. Can I afford to buy this, is another concept that has disappeared from our financial lexicon. The most important thing is to have a good credit rating.

What would the economy look like if most consumers decided, “I can’t afford that”? The constriction might change a lot of things.

Credit Opiate of the Masses

Credit is Limitless (i.e. Pay Later)

Anyone can get credit now, no one gets turned down for a mortgage, and if they do, you have blundered mortgages, sorry blended mortgages. Have you heard of anyone being turned down for a mortgage lately? Anybody who wants a new car does not get a loan or lease for a pickup truck? Credit is the lubricant on those transactions.

Will we run out of the lubricant? Will debt get tighter soon? All economic models in North America rely on free spending consumers, and tight debt rules would be the sand in the lubricant of the economy.

Remember, eventually, all debts must be paid, but when will that reckoning be? Perhaps sooner than we wish?

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{ 3 comments }

{ 3 comments… add one }
  • RICARDO February 26, 2018, 10:02 AM

    I am in debt all the time as I use my credit card for just about everything. The difference with my debt is I pay the full balance every month. When you think about it, and as long as you pay in full, it would be unwise to not use your credit card as much as possible. Any good business will have built the credit charges in to the price of the article. The cost of doing business is after all being paid by the consumer. So credit card it is for me. No debit card as that is an immediate cash transfer to the business with no advantage to me and a bonus to the commerce.
    Why should I pay cash for something that has a built in credit charge? I am old enough to remember stores offering “Will that be cash or credit”. To which I questioned how much of a discount they would give me for cash. No one did give me a discount unless you consider Canadian Tire (CT) money as the discount for paying cash. Unfortunately no other commerce would accept CT money so the discount was tied to CT products.

    RICARDO

    Reply
    • bigcajunman February 26, 2018, 10:17 AM

      As usual you are the exception that proves the rule (to quote a madcap math professor I had). Yes paying with credit cards and such can be good, but if something goes wrong such as:

      • Lose your job
      • Health issue incapacitates you
      • etc., etc., etc.,

      and you miss your payments, that is how a lot of folks end up up it, without it

      Reply
      • RICARDO March 2, 2018, 1:44 PM

        I have lost all my vacations but I can not lose my job anymore as I am retired.
        I agree with you that not paying your bills can lead to serious problems with your creditors. As mentioned though, any well run business will have factored in the cost of doing business – such as the credit card fees that they pay on every transaction. I do not see any logic in paying for something that, if I paid cash or by debit card, I am not benefitting from. So I will usually pay cash for purchases totaling less than $10 but above that I will utilize what I am being charged for.
        hen CC’s first appeared the retailer would often ask “Will that be cash or credit”. I would reply with “What is the discount for cash?” Their reply was that the CC company did not allow for cash discounts to which I questioned them the logic of paying in cash for something that had a CC charge built in to the price. If you remember, only Can Tire would offer a CT money discount for cash.
        So again, YES, you have to be able to pay it off every month. If you can not then get out those scissors. Otherwise you are improving the retailers bottom line — at your expense.

        RICARDO

        Reply

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