Imitation is the sincerest form of flattery

As a society, we're now living beyond our means like our government does. But there are a number of reasons for this.

If you haven’t been able to glean this from reading my sister site called The Knothole, I’m a fan and patron of my local minor league baseball team, the Delmarva Shorebirds.

They do a lot of promotions between innings, as most minor league teams do, and usually they’re sponsored by a local business. But one promotion that they began this season is very simple for the onfield host, who finds a spot somewhere in the stadium and simply announces, “The first one who brings a (sponsor’s) credit card and shows it to me wins a prize.” (They’re not paying me to promote their product.) Normally the prize is one of the bobbleheads the team gives out during the year, but that’s not the point of my piece - it just made for a good lead in to the news story I’m about to comment on.

“America’s credit card debt hits a record $1 trillion,” said the headline, and the story reports that the average interest rates on these cards have spiked to a near-record 20.53%. This at a time when inflation is at 3-4% (or so the government claims) and wages are losing ground to the rise in prices.

The part about high credit card interest rates is nothing new - for the most part, they have always run at least 10% above the prime rate, and more for less “creditworthy” borrowers. And there’s a reason for this: by lending money with no collateral and only the customer’s credit record to go on, they’re assuming more risk than, say, the average mortgage lender who is hedging their credit against the tangible asset of your home. (Yet even that went sideways in the Great Recession.) The practice of having high-interest credit is entirely legitimate, at least legally if not necessarily morally. However, I wasn’t so thrilled about that a lifetime ago when I was living on credit.

It’s hard not to be seduced by what people think is easy money. But there’s also a contention to be made about having to keep up.

I was one of the fortunate ones: as a young married couple with a child, both my (now ex-) wife and I worked and we had the asset of a house with a manageable mortgage. But we also had things that came up as unexpected expenses and for those we had the First National Bank of Mom and Dad. Sometimes we could pay them back eventually, but more often it was debt that would have to be forgiven on their part. Try as we might to live within our means, it was a struggle and we couldn’t always avoid the temptation of having some new cool thing, like a computer. (It’s scary to think that I’ve been on the internet for 30 years now. Remember the screech of that 1200-baud modem and tying up a phone line for hours just to get on AOL - or, before that, a BBS?)

Anyway, since we had a guilt trip about borrowing from the FNBMD, we also had a few credit cards, and they always had a balance we struggled to pay off using a rule of paying off the highest-interest cards first when we had a little extra.

Fast forward to the present day, and I consider myself blessed that we have a little money at the end of the month instead of month remaining after the money runs out. We even have a little set aside: when our refrigerator finally died, there was enough saved up that we could pay cash for a new one. To me that was an achievement! But this takes a lot: my wife and I both work, and I have my various side hustles going as well. (Is this a good place for my “subscribe” button?)

Yet we don’t get everything we want, either. Yes, I just bought a new truck, but it replaced my 17-year-old car with 226,000 miles on it. And my truck had negative (deduct) options on it because I just needed basic transportation with the ability to take stuff to the dump when necessary. The mortgage company said we could have a $350,000 house, but we settled on a number we believed we could better afford, then waited to refinance it to a better mortgage rate just before the Federal Reserve started ratcheting their rates up the roller coaster. The mortgage company continually offers to let me “take advantage of the equity in my home” but I don’t need cash at 7% to pay for that higher mortgage.

And that computer I alluded to earlier? It’s several-generation progeny now shows me pictures of friends and acquaintances going out on vacation or otherwise enjoying their leisure time. I begrudge no one their success, but social media has begat a society that is envious of their peers having a good time. What we don’t see is the sacrifice (either through past saving or future debt) it took to get there.

The point is: sometimes we have to go without. I’d love to have a shiny cherry-red classic AMC Javelin in my driveway as a playtoy and thing to look cool but don’t want to go through the sacrifice of my time and money to keep it clean and insured. If others do and can afford it, I’m happy to see it at a car show once in awhile. (Anything AMC is pretty rare around here, but I come from Toledo and since they made Jeeps there for AMC, Javelins held their own there.)

Unfortunately, we as a generation (Boomers/Gen Xers) didn’t teach a good enough lesson to our kids about delayed gratification. They always wanted the newest, coolest toys and we gave in because we wanted the kids to have it better than we had it. And forget layaway like in the old days: after all, it was just another $400 on the credit card, what can it hurt? It hurts us to about a trillion dollars now.

They use it to bribe some of us instead. However, I doubt those people hold out for singles.

And it hurts us that our government has made it a policy to place the dollar printing presses on full throttle without the value to back them up. Newt Gingrich recently made a good point about this.

Since the explosion of spending under President Joe Biden is the major driver of inflation, it is important to look at how we got here – and why the Federal Reserve is having such a hard time bringing inflation under control.

The short story is: Biden decided to treat the temporary COVID-19 response funding under President Donald Trump as a new baseline of bigger government. Automatically, that meant more spending, higher taxes, deeper deficits, and ballooning national debt.

Now, the federal government is pumping money into the economy faster than the federal reserve can squeeze it out through higher interest rates – although the Fed’s still trying.

Small businesses, people relying on credit, would-be investors, and others are all being squeezed by the Federal Reserve’s steady increase in interest rates. The Federal Reserve’s goal is to make borrowing so expensive that most American consumers and businesses will simply have to cut back on spending.

Without going down the rabbit hole of the necessity of government spending on the overreaction to a severe flu epidemic, the key takeaway from Newt is that the “temporary” bump has become the baseline. It was the largest inducer of inflationary pressure which was already beginning in the latter half of the Trump administration. Add to that the broken economic window of early 2020 we had to repair, and we are indeed squeezing out the middle class. If you’re not lucky enough to be rich, you’re rapidly becoming poor and the ladder of upward economic mobility is being pulled up. Sadly, the one lifeline for many seems to be that of living on credit and hoping things somehow get better.

Those of us who lived through the Great Recession as adults might have a little bit of understanding of what’s ahead, but it’s probably a good idea to read up on self-sufficiency for the family because this debt either has to be paid or forgiven - and I don’t think the creditors are the forgiving type.

P.S. In the spirit of relieving debt I decided to make this a free week, so all subscribers get both full articles. However, if you wanted to upgrade to a paid subscription it would be an encouragement!