The concept of easy credit and Americans carrying too much debt was what first got me into financial blogging a couple of years ago.
Now, you can read news about Americans being overburdened by debt everywhere since the uncovering of sub-prime loans debacle and economic slowdown.
But, even after all of these debt problems surfaced, attempting to become debt free, or non-dependent upon credit, is still not an important issue to many individuals and businesses.
For example, I recently finished reading Jon Markman’s MSN Money post, “As loans dry up, so will economy“, and would have commented on it there, but direct comments weren’t available. So, I thought I’d comment on it here. My opinions don’t differ much from Jon, but let me present his case in a little different perspective.
When I read what Jon wrote about tightening credit,
Credit is the fuel of industry, and it is a vanishing resource despite a campaign of unprecedented swiftness by the Federal Reserve to slash short-term interest rates. As it disappears from the landscape, so, too, will hopes of a broad, lasting recovery.
it caught my attention that we Americans still don’t get it. We’re still seeking to continue on the same path of dependence upon credit that got us in the mess that we’re in today. Instead, we should be seeking ways to become debt-free. Becoming debt-free, and having a large cash emergency fund (or reserve), is what every individual (and business) should consider a priority.
Jon also wrote:
The family-owned maker of Alpenlite-brand motor coaches and campers had survived every bad economy and spike in oil prices since 1971, but it had to shut down when banks yanked its credit. Without the ability to borrow to buy parts and maintain payrolls during a period of seasonally soft sales, as it has always done, a wonderful small business went poof.
This is where Jon’s and my perspectives differ. It’s seems as though blame for this family-owned business failure is being attributed to the ongoing credit-crunch, and the inability of the company to borrow money. He blames the banks’ decisions not to lend for the company’s failure.
Of course, I have to disagree. I would think that the company managers’ inability to budget is responsible for it’s failure, not their inability to borrow. Why do I think that?
As Jon wrote, this company has been in business since the 1960’s and has seen it’s share of hardship over those years. In all of those years of business experience, shouldn’t it have occurred to management to save money for the lean times, and not become dependent upon someone else to keep their company afloat?
You can’t tell me that in over forty-years in business this company couldn’t have put away a little cash reserve each year, eventually creating a buffer big enough to cover their bills or any unforeseen circumstances. Just like the old “ant and grasshopper fable“, we would expect this of individuals, why shouldn’t we expect this of businesses too?
Like I said, many we Americans just don’t get it. Credit was so easy to get in the past that it just became easier to depend on easy credit, and not be concerned with saving for the future. Now that credit isn’t so easy to get, we’re mistakenly blaming others for our own shortcomings.
Have we learned nothing from the sub-prime fiasco?
So, while I agree with Jon’s assessment that credit is the fuel of the industry, it shouldn’t be. Credit may be essential for start-up companies, but established businesses should know better than to depend on credit, or to be overburdened by debt.
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