Fed, Treasury Ready to Boost Credit Card Debt-Fueled Consumer Spending
November 25, 2008 by Miranda Marquit
Filed under Finance
Almost two weeks ago, I posted a news package from NPR in which I was heard talking about fixing the economy. One of the major points of the interview — although it didn’t make a significant appearance in the news package — was that as long as we have an economy that is based on continued consumerism fueled by debt (mostly credit card debt), we will have a relatively unstable economy in which explosive growth is expected, but unsustainable, over the long run.
Indeed, everything our leaders have been doing, in the name of fixing the economy, has been aimed at increasing consumer spending. And now it looks like they are down to the final straw. Witness the latest TARP program, which is aimed specifically at boosting consumer spending fueled by debt.
TARP to encourage investment in consumer debt-backed securities
The latest TARP plan offers up to $200 billion in special loans to investors who will then buy consumer debt backed securities — securities based on credit card debt, student loans and auto loans. The idea is to encourage investment in these vehicles so that lenders will loosen their recently-tightened requirements and then allow more lending to take place. Consumers will borrow more so that they can spend, spend, spend to save the economy and our American way of life.
Regular readers know that I am in favor of a radical shift from a debt-based economy to one that is more stable (though less sexy in terms of growth) and based more on disciplined spending within our means, saving and exporting technology, goods and services to other countries rather than being the world’s biggest consumer.
Unfortunately, our leaders still persist in pursuing an economic model that is not good for the individual personal finance situation. It is a model that insists that we all be in just enough debt that we keep making interest payments — but that we never quite escape and we never quite go under.
Does anyone else think there is something wrong with this?
This is a terrible idea and will just start the debt consumption cycle all over again.
You said it, Mr.! This is a cycle that perpetuates itself — and becomes more unstable with each pass.