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CREDIT AS A TIME MACHINE
By Stubby Candles, September 26, 2007

Stubby's astute observations are brought to you by:

The Institute Of
Higher Earning

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As recently as three generations ago -- I am speaking of Americans who were born prior to President Franklin Roosevelt's official transformation of America from a constitutionally limited republic into a virtually unlimited socialist welfare state -- working people never dreamed of going into debt in order to buy things.

People tended to be more realistic and self-reliant about things in those days, simply because there was no 'cradle-to-grave' wealth transfer mechanism to pick Peter's pocket in order to take care of Paul.

When the Pilgrims landed at Plymouth Rock they were not disappointed that there was no one from Social Services there to greet them; and three hundred years later by the early 1900's there still wasn't.

In fact, the average American living in 1900 had no contact whatsoever with the federal government throughout the course of his or her entire life, unless drafted into a war somewhere along the way. The only point of presence of the central government in most communities was the Post Office.

There was no federal income tax, no state income tax, no federal or state welfare agencies, no Federal Reserve System, no OSHA, FDA, FCC or any of a plague of other 'three letter agencies' as there are today. Virtually nothing in your life was regulated; you were pretty much on your own to exercise your free will and help everyone else to do the same. Which is why people had large, extended families -- so they could stick together for mutual assistance and support.

All charity was local, sponsored largely by churches and private relief organizations to temporarily assist families down on their luck. The very idea of having to buy everyday staples on multiple lines of credit extended by a variety of different merchants, each competing for your purchase, was not only totally unheard of, it would have been considered folly, if not madness.

Those families who did need to a tap line of credit with a local hardware or general goods store did so as a last-ditch act of desperation, often accompanied by feelings of shame and humiliation. The very notion of a lower- to middle-class working person intentionally going into debt in order to purchase a lavish (read: very expensive) item intended largely for personal amusement (think surround sound entertainment center) would have been as alien as not having a gun over the mantelpiece.

Today, just three generations later, as a result of a lifetime of mental bombardment by mass advertising, people have been conditioned not only to want more than they can afford -- meaning able to acquire with cash on hand --, but to compete with the 'Joneses' for the very latest in fashion, transportation, cosmetics, entertainment and so forth.

Today, people even with zero discretionary funds to spare -- by which I mean cash savings above and beyond monies already earmarked for expenses and investment growth --, yet who refuse to delay gratification by saving up for what they want, will not think twice of charging an item on a credit card so they can take it home with them, right now.

Let us examine what actually happens when this occurs. Buying an item you cannot afford by using a credit card to pay for it is like stepping into a financial time machine. Rather than living in the 'here and now' and having to deal with the realities of your true financial condition, you simply reach into the future and bring the desired item back into the present, then start paying for it monthly with today's uncertain dollars.

Long into the future, most likely for many, many months to come, you will make a series of payments -- probably minimum payments -- on the item you just charged. You are able to do this because you were extended a line of open, revolving credit based on the system's evaluation of your productivity as a societal production unit, meaning your ability to keep repaying debt.

Seen from this perspective, everyone can be issued at least a little credit. Even the young person still living at home and earning $200 a week flipping burgers at minimum wage can be extended a little bit of credit, just so they can get 'hooked' on the experience.

It's powerful stuff being able to have what you want, right now, even when you can't afford it. And like Santa Claus and the Tooth Fairy, the system is more than happy to grant you your every wish! As the great socialist revolutionary Karl Marx once phrased it, 'from each according to his abilities, to each according to his needs.'

The credit system 'sizes you up' and decides how far in the future you will be allowed to live. Those with good credit and strong cash flow will be extended huge lines of credit, sometimes multiples of their average annual earnings, so that they can live many years in the future, all the while locked into continuous, present-time production performance out of the necessity of making continuous monthly payments.

Assuming that such a debtor's health holds up and he doesn't lose his job -- or if he does, that he can quickly replace it with a similar one -- the system will continue to allow such an individual to live the illusion of wealth by 'renting' them the things they desire.

Why do I say 'rent'? Because, in a philosophical sense, a thing bought with credit has not really been purchased at all. The means to complete the transaction has been extended by the party who extended the credit.

When you walk into a department store and walk out with a brand new $2,000 laptop computer, bought with a VISA credit card, who was it who actually extended you the line of credit? Was it the store itself? No, it was VISA. The store gets paid by VISA, not by you. You simply agree to pay VISA back over time, plus interest.

So have you really bought the item yet, or are you in sense just renting the use of VISA's money, thereby creating the illusion of purchase? Who holds actual title to the item you purchased, you or VISA? That's a good question, isn't it?

Under the new bankruptcy laws, if you use a credit card to purchase a discretionary consumer item too close to the filing of the bankruptcy petition, you can be required by the bankruptcy trustee to divest yourself of the item you bought. Isn't that interesting! If someone can force you to return a purchase, did you really own it in the first place?

There is a fascinating movie I'd like to recommend to your viewing. The title of this movie is 'THX 1138.' It's director is George Lucas, the very same director who twenty years later became famous for directing the 'Star Wars' series. THX 1138 is a sci-fi movie set on Earth in the distant future in a bleak and disturbing society where your only value as a human is your debit/credit relationship vis-a-vis the central computer. When you are no longer a productive unit and get too far behind, you are simply deleted!

The antidote to a life of indebtedness is a life of frugality. Never spend a penny on something you don't really need. Save up for the things you desire.

* Does anyone really need to go on a vacation they can't afford? After all, you could stay home, draw the blinds, get out the sun lamp and read some good novels from the library for two weeks.

* Does anyone really need a brand new SUV? How about last year's model, bought with only 20,000 miles on the odometer, thereby saving you thousands?

No doubt you could think of endless examples of ways in which average Americans squander their limited resource of labor for a ride in the Credit Time Machine. Unfortunately, once you 'beam' yourself too far into the future, there's no coming back. You're stuck there, like THX 1138.

Fortunately, there's no delete key.

Yet.

Stubby Candles
Forex educator and custodian for The Institute Of Higher Earning ("I take out the pips.')

P.S. Stubby is also the developer of Forex market educational and trading systems that can pluck profits out of the currency market like a big ol' John Deere combine sailing across a Kansas wheat field. For more information (and a nice 33% savings off all products and services) visit The Institute of Higher Earning and tell them "Laptop America sent me."

Once called 'the world's most prospiscient currency trader,' it is apodictic to state that the loveable chrestomath and polyonymous quant known as ‘Stubby Candles’ has achieved the entelechy of his existence as a member of the currency clerisy by issuing astonishingly fatidic daily Forex signals from an aphotic and somewhat caliginous library located deep in the catacombs of the Institute Of Higher Earning of Milford, New Hampshire USA. Any questions? Read more about Stubby at www.stubbycandles.com.