We’ve all heard about debt. Most college students receive credit card solicitations en masse by their first week on campus, and some have car payments and student loans on their plate already. Sometimes it seems like we have to borrow money for everything.
Unfortunately, students aren’t the only people who have problems with debt. According to the Mortgage Bankers Association, the foreclosure rate of U.S. homes in the first quarter of 2007 was the highest since 1979. Almost everyone agrees that Americans need to figure out a way to save more and spend less-but how? The trouble is that too many people have to take on debt just to pay for food and shelter. Why does it seem like a dollar just won’t buy as much as it used to?
The answer is that it won’t. The U.S. dollar has lost more than 36 percent of its value since 1990. Such a decline not only stretches the already thin budgets of the fixed-income poor; it puts considerable stress on everyone’s finances. Traveling expenses for students who study abroad are skyrocketing. Minimum-wage earners watch as their paychecks buy less each year.
Middle-class Americans cannot keep up with inflation-despite what Wall Street bankers and politicians would have us believe. The real problem isn’t that everyone wants the latest luxury gadget, or that we cannot control our spending habits. America’s debt-based, inflationary economy encourages spending and debt, rather than thrift and investment. Even if everyone resolved to cut up their credit cards tomorrow, there would be little impact on our debt problem so long as our government continues to spend money that doesn’t exist.
Money, like any other good, follows the law of supply and demand. If there is more money, each unit of money loses value. The federal government has continued its habit of printing excess dollars throughout the past several years to finance its operations and pay its debts. Expansion of the money supply has outstripped productivity and economic growth and has landed us in the midst of a global credit bubble. The government’s printing of excess money and manipulation of the credit market is the cause of inflation, and those economic distortions encourage bad investments that make recessions more lengthy, frequent, and painful.
To solve our credit troubles, we must become more responsible with our money as a nation, individuals and even college students must take on more responsibility. On a personal level, that means carefully considering whether borrowing money for that new car is a good idea, or whether we should save and pay cash instead. As citizens, we must ask whether our government is doing a good job managing our money supply, or whether it’s causing more harm than good and we could do a better job managing it ourselves.
What are your plans to become more responsible with your own money? E-mail us and share your strategy to [email protected].
