Last month my wife, a full-time mother with minimal income, walked into a dealership, paid a 10 percent deposit on a 2005 car with a credit card, and drove out an hour later having promised to pay the first installment in a month or so. It would have been quicker but she wanted the windows tinted.
She always pays off her two credit cards every month, which acts like a magnet for an endless torrent of offers for more credit from banks and card issuers. One wonders what’s in it for the lenders given that she always pays before interest is incurred. In fact, until the car and a recent house mortgage, we cruised along debt-free, except for the occasional overdraft when checks are late, as sometimes happens with even the best of intentions.
The US can finance such torrents of indiscriminate credit because it is borrowing cheap money from the rest of the world. Despite wobbly fundamentals and a steadily devaluing currency, moneylenders can get rates of return that make Shylock look like a benign philanthropist; an arm and leg weigh more than a pound of flesh.
To continue our personal odyssey in the world of consumer credit, after buying our weekend house – a bit like getting a timeshare in a monetary black hole – we took advantage of a big home improvement chain’s offer of free credit for a year. Every time we hit the credit limit, it was raised. In no time at all, a new kitchen and lots of hardware had us pushing $10,000 on the statement.
And then I discovered what was behind the Siren calls of cheap money. Note the uppercase ‘S’ – these sirens are not the ones that deafen New Yorkers but the comely maidens with seductive voices who tried to seduce Odysseus onto the rocks. He only had to plug his crew’s ears and tie himself to the mast to escape that fate. If he had steered through the average shopping mall or had regular mail deliveries, he would have sunk as surely as the Titanic.
If our home improvement ‘free credit’ balance is not paid up in full within a year, the interest rate will be a usurious 21 percent – backdated. We would immediately owe more than $2,000. As is our wont, we will indeed pay off the full balance, but the bankers know that far too many customers will not. Most borrowers rub their hands in glee at the thought of free credit, will only begin to pay in installments after a year – and will be shocked when their debt burden grows. This is entrapment, on a par with offering alcoholics free drinks and hitting them with the tab at the end of the night when they are no longer in any condition to resist.
Maybe this is what those cunning Chinese are up to. They have been feeding the US with cheap credit by buying up Treasury bonds, just waiting for the opportunity to lever up interest rates and foreclose on our country. We should remember that for countries and consumers alike, it’s the law: there is no such thing as free money.
