I was chatting about this over the weekend with a couple people and we really couldn’t put a good finger on what the detriment would be. It saves money, stops inflation, and will give [good] credit to people that deserve it.
I’m talking about instead of Obama signing an $800BIL package to pump money into our economy, how about taking the debt away. So not just banks or car makers – everyone. What’s the problem?
Everyone Has Debt
The grocery store owner owes money to the farmer; the farmer owes money to the banks; the banks that loan trillions of dollars a year have debts they have to pay to other banks. Money is cyclical.
If you’re already in debt, getting another $1500 from Obama & Co. isn’t going to help you stave off the bank from taking your house for too long. Just like the last payment, which hasn’t apparently done too much, is going to get used by the users how they use it.
If you’re a good saver, you probably put that money towards something good last year. Your ROTH IRA or a high-yield savings account, or towards your house. Something that’d grow. And odds are, you weren’t one of the people that was in trouble.
If you’re on the flip side of that coin, you likely spent the stimulus package on a trip to Disneyland or a new car, while ignoring the point of it to put it towards something to give you some breathing room.
Yes, it was dubbed to “stimulate the economy” and you did with your vacation and your new car, but those were likely just last hurrah’s before you lost your house.Now here it comes again with another fat stack of cash to help these people out again.
The responsible people will do what is needed, but the irresponsible folks are likely just going to do something similar again. The problem isn’t money, the problem is people’s management of money.
If were you to wipe the slate clean across the board and heavily wratchet down the available credit to those that couldn’t afford it, we’d save ourselves from getting caught in this trap in the first place. The people that couldn’t afford the things they’d bought would get a free ride this time, and not just a temporary life jacket. It’d be insane, but isn’t 800BIL across the board?
Additionally to the people that are responsible with their money, they’d be re-stimulating the economy by re-investing and reallocating funds properly. They’d no longer have a car payment or a house payment, as it’d be wiped clean.
They’d be putting their money back into something that would turn a profit for them, and likely in America. To the people that only had 2 years left on their 30 year mortgage vs the people that just bought the house, tough luck and good work paying it down. Timing is everything I’d reckon.
If that’s too dicey for you…
…how about a stair-step approach to it. Something along the lines of if you’ve had good payments and credit for 15-20 years, you get your debts paid 90%. If you’d had good credit for 10 years you get 80% paid, 5 years, 60%. 1 year 30%, etc. Something so that you get rewarded for the things you’ve done, but get helped at any avenue along the way.
So if you’re a business owner, you know how it can be. Imagine you sell a product, and have just shipped off 50,000 units of your product. You’re no longer getting paid for those products, but you no longer have to pay for them either. No harm, no foul. Send back all the unused items and start again.
I’m not convinced that the first Stimulus Package did anything. I’m not saying I don’t appreciate it, because I’m good with my money. I put that money to a few beefier payments on my mortgage, and I’m happy to do it again. But getting to the root of the problem would be a better stance at the highest office.
I think that “root” is the availability of funds. It reminds me of the Steve Martin skit from SNL many moons ago – What Do You Do If You Can’t Afford It? It rings really true for America, and we’ve gotten ourselves in a rut in thinking that credit is easy to come by and easy to get out of, when it is not.
It’s really straight forward to keep your credit clean. Don’t use it if you don’t have it. American banks have gotten loose with the cash and need to bring it back to the earlier days of frugality. If you didn’t have the cash, you didn’t get what you wanted, period.
I say we give everyone a blanket wipe across the board. We all screwed up, we all know it, and [some of us] think that tossing another nearly 1TRILLION dollars at the problem isn’t going to solve it. Nip folks with bad credit and don’t let them get it again, would that solve the problem?
Filed Under: financial education