BY DAN VALENTI

PLANET VALENTI NEWS AND COMMENTARY

Second of Two Parts

(FORTRESS OF SOLITUDE, WEDNESDAY JAN. 5, 2022) — Low interest rates. Sounds good, until you look at the harm inflicted.

Modern economies exist because money moves around. THE PLANET gets that. What we don’t get, and perhaps it’s because we grew up around people who remembered and lived through the Depression of the 1930s, is reckless borrowing — fashioning a life and a lifestyle on money you don’t have.

From bankrate.com: While credit has increased Americans’ purchasing power — helping them buy homes, cars and other goods — it’s also normalized debt across the U.S.

As of September 2021, consumer debt is at $14.96 trillion, with the average American debt among consumers at $92,727.

The overall debt figure includes credit card balances, student loans, mortgages and more. Here’s a closer look at debt across the U.S. by type of account using data from Experian’s 2020 Consumer Credit Review.

Snapshot of consumer debt

———- ooo ———-

Low interest rates and newly printed cash combine to create a fatal poison similar to heroin. Ingesting or injecting the stuff creates a blissful but temporary euphoria that lasts only until the next hit. Then the next. Then the one after that. Pretty soon, you’re chasing the high, needing more and more junk just to feel “normal.” At that point, you’re hooked, which is where America is, financially.

Yes, the U.S. is still the #1 world economy, but China has all but closed that gap. By some measures, China has overtaken us. Within five years, China will be in across-the-board first place, if it’s not already. The Chinese approach to economics deserves an entire series on THE PLANET. Under the expert leadership of Xi Jinping, China has combined the best of capitalism (free enterprise) and communism (social security), allowing all forms of capital to equally compete in the financial markets. Clearly, this is not your grandfather’s China.

———- ooo ———-

Low interest rates encourage foolhardy borrowing. If you borrow money at, say, 2% and invest in an asset that brings in a 20% profit after you flip it, you make 18%. In the 2000s, homeowners could resist their greed. They saw a house not as a domicile but as a rising asset and “sure thing” investment, purchased not to put down roots but to keep for two or three years then sell at an inflated price. And, voila!, the next thing you know “ol Jed’s a millionaire.”

Except there’s no such thing as a “sure thing.”

Asset bubbles are great but have just one drawback: they burst. We all know what happened in 2008. Greedy speculators, disguised as homeowners, claimed they didn’t understand the terms when they borrowed for a house. They were “victims, you see.” Under Obama, with the welfare state building up serious steam, few thought to ask these money lovers, “Well, why did you sign the frick’n contract if you didn’t understand it?” They understood greed, though.

So did the investment bankers, who found new ways to bundle debt to create “products” that relied on the assumption that prices would keep going up.

———- ooo ———-

Money always “looks for a place to go.” Flood the market with too much new cash, and you have inflation, the gleeful assumption of cheap debt, and the expectation of reaping huge profits. Banks love lending low-interest money because it sees collateral as an asset also rising in value. This leads to far too many risky loans made to people and entities that can’t afford them and aren’t sustainable in realistic financial conditions. They borrow but then can’t pay back. That’s when politicians and officials find the Kapanskis useful. They’re the ones with the bailing buckets.

We can learn from the Fed’s action as the 1970s came to a close. It raised interest rates to 10% in 1979 and 20% in 1980. The moves successfully fought asset and price inflation.

However, don’t count on such courageous action today. The Tom Hoenigs and Chuck Trzcinkas of the economic and political world come along far too infrequently. They’re the ones on the short end of the 11-1 votes, or in the case of Pittsfield automaton city council, the 10-1 and 9-2 votes.

As for Sen. Granny Elizabeth Warren, who has never once voted to reel in government spending, well, she’s proven more of a space shot than the entrepreneurial Elon Musk, a brilliant entrepreneur who has actually succeeded in literal space shots.

Excuse us now. THE PLANET is going out back to start our bonfire of vanity. We shall be burning our piles of cash.

That’s how much we’ve come to loath this fiat currency.

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“To bee or not to bee; it all depends on how much you love honey” — Sir Donald Turpentine, Knight of the Bath.

“OPEN THE WINDOW, AUNT MILLIE.”

LOVE TO ALL.

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