Is debt good or bad for the economy, debt plays a complex and significant role in maintaining the stability of a fragile economy.
When credit cards with 21% interest rates become the primary means of maintaining stability in the global economy, it’s clear that this is not a sustainable solution. The long-standing practice of offering easy credit at exorbitant interest rates has evolved into a financial trap that serves as a safety valve for a broken system.
The credit landscape has become a familiar feature of modern finance. Credit cards are distributed liberally, often with enticing offers. However, these offers come with a perilous twist: insanely high interest rates and hefty late fees. Credit card issuers are fully aware that many recipients will ultimately default, yet they continue to profit from the high interest and penalties charged to those who struggle to keep up.
This dynamic is what makes the system a swindle. Creditors know that many consumers will quickly find themselves overwhelmed by debt. The expectation is clear: while some will default, enough will continue to pay interest and fees to ensure profitability.
Critics often dismiss this exploitative system as “the free market in action,” arguing that consumers voluntarily accept the terms of these credit agreements. While it’s true that no one is coerced into accepting these terms, this perspective overlooks the broader context of economic decay. The decline in purchasing power has rendered the so-called "American lifestyle" increasingly unattainable for many, forcing reliance on credit to bridge the gap between income and expenses.
In a consumer-driven economy, four primary elements are valued: profits, wealth, power, and attention. This environment fosters a relentless pursuit of status through consumption. As wages stagnate, credit becomes essential for maintaining access to experiences and goods that symbolize success and fulfillment.
With take-home pay often consumed by rent and essentials, many people turn to credit cards to fund vacations, concerts, and other lifestyle expenses. Initially, consumers may see credit as a way to achieve their desires; however, the reality is that high-interest debt soon outstrips their ability to pay for necessities.
The widening gap between earnings and expenses can have dire consequences. If credit card interest rates were capped at more reasonable levels, such as conventional mortgage rates, the dynamics would shift dramatically. Lenders would likely cease issuing cards to those with lower credit scores, as the losses incurred would no longer be offset by high interest rates.
Without the current high rates, credit would primarily benefit those who can pay off their balances monthly, raising questions about the sustainability of the entire credit system. The reality is that easy credit serves as a pressure release for an economic system that is increasingly unaffordable for the majority.
As more individuals find themselves unable to afford the lifestyle they desire, frustration and anger can build. The disparity between the wealth enjoyed by the top 10% and the struggles of the rest can lead to social unrest. Historical patterns suggest that when basic needs become inaccessible, the populace may react violently, reminiscent of events like the storming of the Bastille.
Proponents of a debt jubilee often argue that forgiving debt is the answer to economic woes. However, this approach fails to address the core issue: the growing divide between earnings and the cost of living. A debt jubilee may offer temporary relief but does not fix the systemic problems fueling inequality and economic instability.
Relying on high-interest credit cards to maintain the status quo is not a viable long-term solution. Using financial "fentanyl" to mask underlying issues only delays the inevitable reckoning. As the reliance on debt grows, so does the risk of widespread discontent and potential upheaval.
To create a sustainable economic environment, we must address the foundational issues of income disparity and the affordability of essential goods and services. Without meaningful change, the system will remain fragile, with high-interest credit serving as a precarious band-aid on a much deeper wound.
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