Like crack cocaine, credit offers an amazingly satisfying and thus addictive high. As with coke, the consequences are safely in the future--until the future arrives.
Mainstream economists and econobloggers refer to credit as a financial phenomenon which can be quantified. The most important aspect in the human experience of credit-- its great emotional power--is rarely mentioned.
Like crack cocaine, credit--the ability to buy something for which you don't have the cash--offers immediate gratification: you get the item of your desire (new house, new car, new apparel, iPad, iPhone, iPod, cheeseburger and fries, etc.,) without having to make the sacrifices necessary to pay with accumulated cash.
Like crack cocaine, credit offers the beguilement of living a larger fantasy life without having to do the work required to achieve mastery or make steady progress toward goals. As soon as the coke hits the brain, the the rush of euphoria is akin to the rush of buying new stuff: novelty and acquiring status symbols one's peers desire triggers chemical cascades which mimic the effects of cocaine.
The coke high offers the illusion of power, mastery and euphoric control: all things seem possible. The same euphoria is triggered by access to credit: all things become possible without the arduous "effort shock" of gaining mastery and accomplishment via grindingly hard work, endless sacrifice and dogged perseverance.
Buying stuff on credit triggers the same reward and euphoria centers of the brain as cocaine. This is why credit is so addictive: the rewards are instantaneous-- hand the clerk the plastic, walk away with the goodies a moment later--while the consequence of the "high" are safely in the (apparently) distant future.
This is why it's so effortless to borrow $1.6 trillion a year to fund a bloated, unsustainable status quo Federal government/U.S. Empire, and another $1 trillion in the Fed balance sheet to sop up toxic mortgages, and another credit card to roll over the debt from previous cards, and so on: the cost is always "later."
The problem with addiction is that eventually it dominates one's life in a completely self-destructive way. The problem with credit/debt is that servicing the debt (paying interest) eventually dominates one's income. Most of the tax revenue or income you earn goes to paying interest. The rest of your life and needs are crowded out, and you become insolvent; you can't pay your bills. You either renounce your debt/addiction or slip into a death spiral.
America is coming down from a nasty addiction to credit. The collective nose is corroded and the collective body is ravaged by constant overdoses of credit; appetite for reality is zero and a limitless, deep depression has conquered the collective mind as the frayed, unwelcome edges of reality are intruding on the fantasy of easy power.
Living larger than one's efforts and abilities appeared so easy when high, and now that the harsh consequences of addiction and despoilment are unavoidable, the addict is immensely depressed.
Like coke and smack, credit soon loses it ability to trigger the desired euphoric high. More credit is required to stimulate any response at all, just like other addictive drugs. The alcoholic can down a bottle of wine that would floor a sane social drinker yet that barely moves the needle of the alcoholic's need for dissolution.
The credit monkey on America's back is in fact a gorilla, and the renunciation of credit as the life-force of the American psyche and economy has barely begun.
As every addict who doesn't kill themselves eventually discovers, fantasy is no substitute for reality. In the grip of the high, the addict feels that all is possible, and the drug is harmless and managable; so too does the credit addict substitute magical thinking for a realistic assessment of the addiction and its horrific cost down the road.
The pushers--in this case the Federal Reserve and its cronies in the banking cartel-- keep lowering the price of the "junk" (credit) to keep the addicts hooked.Just as pushers accept that a certain number of junkies will expire, go clean or run out of money, so too does the Fed and the banking cartel accept that some credit junkies will lose their homes and run out of money to service their addiction.
The pushers' response is to recruit new addicts via cheap nickel bags of credit: credit cards for college students, 0% financing for vehicles, tax credits for home purchases, cash for clunkers, etc.
But at some point the available pool of potential addicts is fully exploited. Now the pushers have a problem. Their "old customers" are being foreclosed on at the rate of 2 million+ a year, and credit cards are regrettably being denied to those debt junkies who can no longer pay for their junk.
Their only choice is to try to push more credit on their regular customers. Now they face another problem: the old users are worn down; their veins are collapsed, their financial bodies are wasted to skin and bones, and their ability to buy more credit/smack is falling, along with their health.
The pushers can try "quantitative easing," in which they spread nickel bags around every city for free in the hopes of enticing more innocents to feel the euphoria and emotional power of instant credit. But the innocents are either already jaded, hip to the scam, or they are simply too marginalized to afford even nickel bags of credit/crack.
The pushers are now in big trouble. The ranks of their steady customers are being thinned at an increasing rate, and the pool of new addicts is shrinking.
Even worse, some of the marks are shaking themselves out of the post-high stupor and swearing off the credit/crack, even when the "quantitative easing" nickel bags are distributed freely.
If we return to the roots of actual capitalism, as oposed to the crony-neoliberal- rentier-financial-cartel-State facsimile that is being passed off as "capitalism," we find that credit was extended not to buy but to faciliate purchase over great distances.
Merchants used letters of credit as a way of buying shipments from overseas which might not reach the docks for six months. In the good old days of 1590 (for example), there wasn't enough physical money to clear all the transactions at the great trading fairs in Lyon and elsewhere, and so letters of credit were exchanged to settle accounts.
All of this is laid out in an entertaining fashion in Fernand Braudel's three-volume masterwork on the origins of Capitalism, which I highly recommend:
Revolving credit and 0% down financing are "innovations" of "modern" capitalism which enabled an explosion of manufactured goods, extremely profitable interest payments (recall all the U.S. automakers made far more profit on their auto loans than they did manufacturing vehicles) and consumer euphoria that the bicycle, the auto, the sofa, etc. etc. etc. could all be enjoyed (and indeed, used up and discarded) before the final payment was made.
In the Great Depression, my grandfather paid $1 a week to buy my Mom's bicycle, as he didn't have the saved-up cash to buy it outright. The bicycle dealer made a sale that he would not have made otherwise. This transaction make sense and represented a modest portion of my grandfather's $35 per week salary.
But the step from this sip of credit to stimulate the lively sensations of consumption is a far cry from the addled addiction to credit in which junkies bought $500,000 homes with no money down and extracted every last dollar of their equity via adjustable-rate home equity lines of credit.
Now the sip of credit, once so stimulating, has been replaced by an entire bottle which no longer has any stimulative effect at all. All the bottle does is ward off the painful reality of addiction for one day longer.
Like the wasted addict, America must face the unpleasant consequences of its credit addiction. It must choose between expiring in the stench and squalor of self-destruction, a track-riddled rag-bag of shrunken skin and bones sprawled in the gutter, delirious with delusions of past grandeur, or it has to wake up and accept the consequences of its preference for easy fantasies over the satisfactions of reality lived in full measure, without delusions of power and illusions of easy mastery.
There is no short-cut to mastery, and no short-cut to self-knowledge. To be average is not a sin or an impediment to adulthood. Adulthood requires realistic assessments and making trade-offs for the goals of future mastery and well-being.
Credit was all about taking the short-cut to the good life; but as America has forgotten and must re-learn, there is no short-cut to the good life; it must be earned via sacrifice, personal integrity, accountability and transparency. Everything else is illusion.
Irony alert: since web adverts are placed to match the context of the content, "crack cocaine" may deliver ads for drug rehab services while "credit" may serve up offers from credit card companies.
If you would like to post a comment where others can read it, please go toDailyJava.net, (registering only takes a moment), select Of Two Minds-Charles Smith, and then go to The daily topic. To see other readers recent comments, go to New Posts.
Order Survival+: Structuring Prosperity for Yourself and the Nation and/or Survival+ The Primer from your local bookseller or from amazon.com or in ebook and Kindle formats.A 20% discount is available from the publisher.
Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle
Thank you, Daniel L. ($100), for your outrageously generous donation to the site via mail-- I am greatly honored by your support and readership.