News Story Portrays Debt As Good News

Fox News ran an AP story that sounds like it is supposed to be understood as good news about the economy:

“Americans borrowed more in April to attend college and buy cars and were a little less cautious with their credit cards than the previous month. The Federal Reserve says consumer borrowing rose $11.1 billion in April from March to a seasonally adjusted $2.82 trillion. That’s the 20th straight monthly gain and another record level. Nearly all of the gain came from a category that includes auto and student loans, which increased $10.4 billion. A measure of credit card use rose $682 million. While that’s only a modest gain, it follows a decline of $906 million for the category in March. Steady gains in borrowing could help boost consumer spending, which accounts for 70 percent of economic activity.”

Notice the assumptions of this so-called “news.” Increasing use of credit is a good thing. The fact that people went into more debt in a few areas is promising, but the “gains” are merely “modest.” If only next month we would find out that many more people were using all different kinds of debt! That would be good news.

Does anyone remember why we had an economic collapse in the first place?

Let’s assume, for the sake of argument, that economists are right to want increased consumer spending in order to increase economic activity and grow the economy. Even if that is true, how does it help to promote more debt? Consumer debt isn’t productive. It isn’t like borrowing money to invest in a business that will produce income to pay back the debt.

So what happens if “steady gains in borrowing… help boost consumer spending”? Inevitably, it means that present levels of consumption will suddenly and dramatically fall. People can’t keep piling on debt forever to buy consumables. Eventually, they reach the point where 1) they can’t extend themselves any further, and 2) they have to devote their income to paying back debt rather than consumer spending. At that point, consumer spending will plummet from this double damage. People will not only no longer have the extra money to spend, but they will have even less money because they have to pay their creditors. So any bump in the economy from debt-financed spending is a harbinger of a sudden collapse.

Right now, we have thousands of goods and services that are priced according to what people are willing to pay. But increasing consumer debt that boosts consumer spending also distorts prices. Easy credit encourages price inflation. People buy flat screen televisions and iPods not because they can afford them with their current wealth but because of borrowed money. So consumer items actually become less affordable as borrowing increases.

The conventional wisdom that debt is prosperity is really foolishness. The Bible teaches a different kind of wisdom.