The Country Curmudgeon: Borrowing to prosperity
By Roy Hicks
Thursday, April 2, 2009 11:02 AM PDT
It started innocently enough. All he wanted was a new fishing rod.
Edgar Reems was a 45-year-old bachelor earning $40,000 a year. He drove an 8-year-old subcompact car and lived comfortably in a small house into which he’d built $35,000 in equity. He’d even managed to put away $2,000 in savings. He could handle the monthly mortgage and pay the usual bills easily enough, but there was not much left over for “discretionary spending.”
A cautious man, Edgar usually disciplined himself not to spend money before he earned it. If there was something he wanted, he would put aside his few spare dollars until he could pay cash for whatever he wished to buy.
But here Edgar took a chance. He wanted that new $500 fly-fishing rod and reel badly and decided to buy it on his credit card. What the heck — it’d only cost him about $50 a month (including interest) for the next year. That was a few dollars more than he could usually spare, but he figured he could make it up by cutting a few corners.
Ah! He was happy ... until he suddenly had to go to the dentist to have an aching tooth pulled. With no dental insurance, he put that on his credit card, which added $50 to the monthly bill.
At the same time, Edgar was suffering a mid-life crisis. He’d worked hard for 25 years and always paid his own way but had little to show for it. There were several other things he really wanted, like an aluminum fishing boat with an outboard motor. He found one on E-bay for a mere $2,000 and bought it on his credit card.
“What the heck,” he thought. “I owe it to myself!” And again he was happy ... until the new bills started rolling in, and he could no longer afford the monthly payments.
Then Edgar got a brilliant idea. He’d been regularly besieged by tempting offers for new credit cards. He applied for several of these and received half a dozen more. He cleverly juggled his one overloaded account into what looked like manageable balances on the new ones. Suddenly he had about $20,000 in available credit.
Here Edgar lost his mind. He traded in his old car for a larger one: still used, but costing about $7,000 more, manipulating the finances on his new accounts and applying for a couple more. With plenty of reserve credit left, he also bought a large-screen plasma TV and took a vacation cruise to the Bahamas.
When all of his new credit cards approached max, Edgar realized he not only couldn’t afford the monthly bills, he couldn’t even afford the interest. The mortgage company was getting really crabby about his occasional late payments, and he was in serious danger of losing his modest home. Then Edgar’s “new” car suddenly died, and he had to buy another used one for an additional $5,000.
Now he was in real trouble. Edgar quickly spent his modest savings paying monthly interest charges and then had to start borrowing on the equity in his home. Still the bills kept coming. He eventually ended up more than $50,000 in debt with no way of paying it off. His house was foreclosed, his car was repossessed and Edgar found himself living in a cardboard box under a freeway overpass and wondering how he got there.
Only then did Edgar realize that President Obama’s “stimulus program” of heavily borrowing against the future could not possibly work.
Roy Hicks, a Payette resident, writes a weekly column for the Argus Observer. Comments or questions for Mr. Hicks can be directed to: Roy Hicks, Argus Observer Newsroom; 1160 S.W. Fourth St., Ontario, OR 97914
Matt in Nyssa wrote on Apr 16, 2009 2:06 PM:
Dominic, Yes! Cutting taxes, loosening regulations, and one more thing that you forgot to mention: cutting SPENDING will help to get us out of our mess. Bush started spending like a madman, and Obama has only continued the madness. Both parties are guilty on the spending issue.
Conrad, thank you. You've gotten it right! Who reading this has ever gotten steady employment from a poor person? If taxes are raised on people making a certain amount, that is less money that goes not only to purchase goods and services, but also to employ others in small businesses.
Hellscanyon, trickle-down economics works just fine. Again people with money are able to employ other people into whatever businesses they create, and the jobs that are then created contribute to our gross domestic product. When the government taxes the wealthy, they have less money available to pay people like you for working for them. Your hours are cut, or you are laid off entirely. What we are "enjoying" is the result of numerous people refusing to save, running up mountains of credit that they can't pay off.
Conrad, you are again correct! The government will not get us out of the financial mess we are in until they realize that THEY WORK FOR US--not the other way around.
Hellscanyon, before you slam talk radio hosts, understand that they are so much more well-researched than you. So next time, you need to have a better-prepared argument than your previous post. "