End Unsecured Debt

2007.12.03   prev     next

Every year in America, thousands of couples hit something called the “debt cliff.” After artificially enhancing their quality of life for months or even years with unsecured debt (i.e. credit cards), they hit the limit of what the credit card companies think they can pay back while still alive. Then boom the credit all stops, the interest rates all jack up to the maximum allowed by law (still very high), and the couple suddenly find themselves with an artificially low quality of life for now and far into the future — possibly for the rest of their lives!

quality of life
	time

This graph shows the actual quality of life a couple can purchase with their income (black line), which experiences occasional, modest jumps as they get promoted or move into a higher paying job. The red line shows their quality of life as enhanced by unsecured debt.

What does hitting this cliff do to people? What does it do to their psyche and their general attitude about society?

I propose that we end it. Ban unsecured debt outright. Allow secured debt (home loan, car loan, etc.), but no unsecured debt. At all. Any more.

Of course, free-market proponents will cry foul. But should they?

When the price of a staple goes up, socialists want to legislate it back down, and capitalists want to leave it alone. I think the capitalists have the winning argument: The higher price serves the purpose of encouraging people to buy something else instead, and artificially holding it down will create nasty shortages, long lines, rushes, and all the other miserable crap that is the bane of attempts to legislate prices.

But what useful, economic purpose does the red-line scenario in the above graph serve? None! What bad, economic disaster will jump up if the red-line scenario is disallowed by law? Anyone? Anyone? Shoot me an e-mail when you know.

Most important of all: We know that higher prices are a signal to the citizen who faces them that it’s time to purchase less of that item and maybe look into cheaper alternatives. But what is a disastrous, life-wrecking debt cliff suppose to signal its victims to do? Nothing. Certainly nothing you’d want them to do, anyway.

The unsecured debt trap is the modern-day equivalent of indentured servitude. Nothing horrible happens to the free market as a result of indentured servitude being illegal. And if it was legal, a lot of really bad things would happen. Trust me.