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Old 08-08-2010, 08:53 PM   #1
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Credit is crack cocaine

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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.


charles hugh smith-Credit Is Financial Crack Cocaine
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Old 08-08-2010, 10:39 PM   #2
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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.
Most addicts hit bottom before they wake up from the illusion to face and address integrity, accountability and transparency.
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Old 08-09-2010, 12:35 AM   #3
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Fabulous article!

The irony is that peace of mind comes with that integrity, accountability and transparency and not the instant attainment of "stuff" and an ideal lifestyle that's only in your mind. If people learned to live within a cash budget and used credit only for emergencies, and expensive necessary items like cars and houses people would be a lot happier.

Means and ends are being confused and because there are so many MEANS people have trouble making priorites on which ends are the best and confuse the means and ends. Then you have the problem that no product can be eternally satisfying so you end up with new unending desires that pop up as soon as something is bought and consumed.

Georg Simmel covers this psychological aspect very well in multiple angles in "The Philosophy of Money".

http://copperismoney.com/Files/philosophy_of_money.pdf

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We desire objects only if they are not immediately given to us for our use and enjoyment; that is, to the extent that they resist our desire. The content of our desire becomes an object as soon as it is opposed to us, not only in the sense of being impervious to us, but also in terms of its distance as something not-yet-enjoyed, the subjective aspect of this condition being desire. As Kant has said: the possibility of experience is the possibility of the objects of experience—because to have experiences means that our consciousness creates objects from sense impressions. In the same way, the possibility of desire is the possibility of the objects of desire. The object thus formed, which is characterized by its separation from the subject, who at the same time establishes it and seeks to overcome it by his desire, is for us a value. The moment of enjoyment itself, when the opposition between subject and object is effaced, consumes the value. Value is only reinstated as contrast, as an object separated from the subject. Such trivial experiences as that we appreciate the value of our possessions only after we have lost them, that the mere withholding of a desired object often endows it with a value quite disproportionate to any possible enjoyment that it could yield, that the remoteness, either literal or figurative, of the objects of our enjoyment shows them in a transfigured light and with heightened attractions—all these are derivatives, modifications and hybrids of the basic fact that value does not originate from the unbroken unity of the moment of enjoyment, but from the separation between the subject and the content of enjoyment as an object that stands opposed to the subject as something desired and only to be attained by the conquest of distance,obstacles and difficulties. To reiterate the earlier analogy: in the final analysis perhaps, reality does not press upon our consciousness through the resistance that phenomena exert, but we register those representations which have feelings of resistance and inhibition associated with them, as being objectively real, independent and external to us. Objects are not difficult to acquire because they are valuable, but we call those objects valuable that resist our desire to possess them. Since the desire encounters resistance and frustration, the objects gain a significance that would never have been attributed to them by an unchecked will.
If people rely only on impulses without constant awareness of the prioritized goals it's like going to a supermarket with a list and coming back with more items than you really needed because the advertising starts triggering that resistance in your mind that intensifies desire. I have no problem with people looking for the best products for money or enjoying products if they can afford it but easy credit allows people to reduce the distances between subject and object so quickly that mindfulness or awareness of the choice often isn't as fast as the transaction. If distance is the main reason for intensifying desire then when the distance is closed the object of desire loses value. You can see this in many objects of desire, including relationships, that become taken for granted.
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Old 08-10-2010, 08:05 AM   #4
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omg.....this article is totally talking about me....and I'm sure millions of others.

As it says in the article, I became totally entranced by the endless credit that was available to me by the banks and credit card companies, and I totally fell into the trap they very subtely set for me.

As a result of my reckless spending, I accumulated over 50,000 USD in debt to various creditors and it will take me at least 3 years to pay it all back.
I've also joined "Debtors Anonymous" in an effort to get help to prevent this from happening again.

In short, NOTHING you want to buy is worth getting in over your head for - I learned this lesson the very hard way.
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Old 08-10-2010, 08:30 AM   #5
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At least you're trying to change and get help. Good for you.

So many people turn to bankruptcy or just run away from it and their debt is then "forgiven" or "bailed out". I hate that. If I can be responsible with my spending, so should other people. I don't want my tax money to go and bail out other people's debt.

Although right now I am very tempted to take advantage of the 0% balance transfer rate from one of my credit cards to "pay" for a plasma HDTV, a MacbookPro and annual maintenance service for my car.
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Old 08-10-2010, 10:00 AM   #6
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Great article financeguy. Perhaps one of the good things to come out of the Meltdown is a return to sanity. I was browsing through B&N the other night with my wife and kids and I saw quite a few books regarding the New Frugality (of course, they still want you to drop 20 bucks for the book). I'd love to see this concept take hold in our culture. The CEO of the company I work for probably has a net worth over several million dollars, but he drives a beat-up-dusty-80-something-Toyota and he refuses to put the company in debt. I admire that.
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Old 08-10-2010, 10:39 AM   #7
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In short, NOTHING you want to buy is worth getting in over your head for - I learned this lesson the very hard way.
At least you're learning. After you pay off your debt in 3 years you can use that self-discipline to save for the future. You're definitely in the right direction.

Now the trick is to get the population to elect people who enforce these values in government.

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The CEO of the company I work for probably has a net worth over several million dollars, but he drives a beat-up-dusty-80-something-Toyota and he refuses to put the company in debt. I admire that.
That's a rarity. It's good to see something in contrast to entitlement happy CEOs who get bonuses without merit.
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Old 08-10-2010, 10:50 AM   #8
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it's so weird to me. having any sort of a balance on my credit cards freaks me out, so i do everything possible to pay them off at the end of the month. i never owe anything. i don't understand how people can just have $10K or more sitting on their AmEx or whatever. i fully understand when it comes to unforeseen expenses -- furnace breaks, car gets totaled, hospital bills -- but lifestyle stuff ... i wouldn't enjoy it because i'd know it wasn't paid for and it was actually going to cost me between 17 and 29% more than it was already.
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Old 08-10-2010, 11:26 AM   #9
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Debt freaks me out too. Paying interest makes me crazy wherever avoidable. My only debt is my mortgage.

I am, however, addicted to collecting travel/loyalty points. Like crack cocaine. So every day-to-day expense that possibly can goes on my credit card. I just make sure to pay it off every month.
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Old 08-10-2010, 11:47 AM   #10
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and it was actually going to cost me between 17 and 29% more than it was already.
That's where people get stuck. When they try to pay off the big balance they get the shock of the interest that makes them think they can't pay it off so they look at bankruptcy as a strategy.

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I am, however, addicted to collecting travel/loyalty points. Like crack cocaine. So every day-to-day expense that possibly can goes on my credit card. I just make sure to pay it off every month.
There's nothing wrong with that. I use my credit card all the time but pay it off completely so there's no interest. Though I wouldn't recommend that strategy to those who are addicted to carrying a balance. They may have to cut their card(s) so they can get a handle on it.
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Old 08-10-2010, 07:33 PM   #11
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As a counterbalance to the above posts, anyone I know or know of that is seriously wealthy has also been seriously insolvent at some stage in their lives.
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Old 08-10-2010, 07:45 PM   #12
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Great article financeguy. Perhaps one of the good things to come out of the Meltdown is a return to sanity. I was browsing through B&N the other night with my wife and kids and I saw quite a few books regarding the New Frugality (of course, they still want you to drop 20 bucks for the book). I'd love to see this concept take hold in our culture. The CEO of the company I work for probably has a net worth over several million dollars, but he drives a beat-up-dusty-80-something-Toyota and he refuses to put the company in debt. I admire that.
I have not seen any evidence of a return to sanity.

http://www.economist.com/node/16485620
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Old 08-10-2010, 08:27 PM   #13
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I hear Rupert Murdoch was about 24 hours away from bankruptcy in 1992 or so. In hindsight, I wish he'd gone down.
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Old 08-10-2010, 10:08 PM   #14
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That's a rarity. It's good to see something in contrast to entitlement happy CEOs who get bonuses without merit.
Maybe the difference is that he and a few others built the company from scratch...instead of being installed as CEO by golfing buddies that lost a bet on hole 15.
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