Thursday, July 21, 2011

Deleveraging a Bar Tab

It is odd how people are freaking out because the world is "deleveraging".  When you listen to the press, this is a bad thing, soon to be the end of the world.

But in truth, all that deleveraging entails is getting out of debt.  Nothing more, nothing less.

I have been deleveraging now for the past three years.  My gross debt was a credit card run-up caused by keeping my medical insurance active while I was unemployed.  $800.00 a month for more than a year can cause quite a bit of leverage.  But the balance plows down at a steady -$350.00 a month and it will go away soon enough.

That is deleverage.  It is a virtuous thing.  It means that you have finally came to your senses and started living within your means.  Sometimes debt is necessary, but you pay it off.  What we did in the 'nineties and 'ought's was just plain foolish living beyond our means.  We got caught up in tulip-mania and now we have woken up and started paying the piper.

The "growth" that we got used to was nothing more noble than running up a bar tab.  I think that this analogy it the best one, and since I am the first one I have heard using it, I will take it as an original thought.   It doesn't mean that I was the first to use it, no it just means that I thought of it myself, or I am too senile to remember where I heard it in the first place.

Anyway, giving folks a bar tab is always a fools game.  The customer will always pimp you in the end.  What the banks did was play the fool and give a whole bunch of folks a whole bunch of money, which, fools that people be, they used foolishly.  Now the banks are freaking out because they are fully aware that they are in fact, the greater fool.  The government isn't going to act as their kneecappers for them, so they are trying to get the money out of the government itself.

No one knows how the whole thing will play out, but folks getting themselves out of debt and not taking on any more debt gives me some hope

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