Endless Debt

I’ve been thinking a lot about debt lately. Every few months you’ll see a headline announcing the latest milestone of liabilities accumulated by the United States. At $34 trillion it stops being a number that’s easily comprehensible. Trillions owed to who exactly? Funded by the sale of what assets? You assume your country is in bad shape, but then you look across the globe and everyone else is in massive debt as well. It all seems to be a fugazi.

The U.S Treasury has put together a little “National Debt for Dummies” style dashboard to try and explain itself. Complete with personal piggy-bank analogies and infographics. Whoever designed the website appears to have snuck in a subtle jab at our fiscal woes by deciding to include Ben Franklin’s quote about avoiding debt at all costs.

via Treasury.gov

In New York City, you can do some morbid tourism and head over to the National Debt Clock. An always increasing ticker of digits, reminding you of the gargantuan sum that your family is in theory on the hook for.

At this point, it may be wiser to adopt the strategy of McDonalds and ditch the counter for a more ballpark boast.

The United States: Trillions and Trillions Borrowed. USA: We owe a lot of money.

The looming “debt doomsday” in America is something that has been prophesized about for decades now. The idea that we will soon reach a point where the weight of the borrowing becomes too large to bear and the entire economy and society implodes. To me this seems silly to worry about, because there’s little you can really do to change things. Either it won’t be a problem in your lifetime, or if it is going to be a real problem, then we’re probably already too far gone to reverse course.

Nobody is electing the “Austerity Candidate” into office. Higher taxes and less government programs is a losing campaign from the start. We’re not going to hunker down and suffer for years to pay down debt accruals. This is an addicted nation on a cracked-out debt binge and we’re gonna ride this high for as long as we can.

Debt and Morality

Debt has always been a touchy subject. Nearly every very major religion condemns loan-sharking at high interest rates under the sin of usury. Sure all men might be created equal, but once debt gets involved we now have a clear imbalance and path to bondage. The Sumerian word for “Freedom” translates essentially to “release from debt”.

Even in modern times, there is a natural unpleasantness around directly quantifiable debt. A number that declares the degree to which you are in submission to another person or entity. The Venmo app—while being convenient and useful—has a vulgar feeling when scrolling down the feed of friends settling up petty debts. It turns traditional neighborly interactions into cold, financialized transactions.

With faceless merchants, you pay the exact price for goods as a means of ending the interaction with a stranger. With friends, you don’t need to settle up the tab immediately, there’s an expectation of ongoing relations. You can pay for a round of drinks, and then your buddy will get the next one. Within the tribe a slight trade imbalance is fine. It’s assumed that if one was ever in need, the fellow tribesman would readily repay the favor. One of the joys of friendship is this feeling of unquantifiable mutual indebtedness to each other. You would give the shirt off your back for your brother just as he would do for you.

The involvement of numbers, deeds, lawyers, collateral, interest etc. perverts good natured exchange of beneficial favors into something more sinister. It’s difficult to say exactly when a contractual debt agreement becomes amoral. Indentured Servitude feels barbaric by modern standards, but we also allow present-day universities to loan-shark 17 year-olds into a similar system. Even the IMF, which is essentially a global debt enforcer, publishes essays wrestling with the question of “The New Morality of Debt”.

The only thing everyone is in agreement on is the omnipresence of debt. It is a cog in the wheel of every facet of society now. Some people love the ability to take on lots of debt, while others try to avoid it like the plague.

The Debt-Maxxer

The Debt-Maxxer typically falls into two camps. Dimwits and Financial Speculators (who are also sometimes dimwits).

On the one hand you have a guy who has no idea what an interest rate is. A person blissfully living for today, and will let their future self worry about whatever they have to owe eventually. He confidently “Selects Affirm at Checkout” and signs up for the 6 payment installments. The only meaning of APR that he knows is an abbreviation for the month of April. He boasts about how the used car lot let him walk out of there with a free vehicle (his monthly payment is $859 at 14% interest).

The flipside is the guy who loves to skillfully play the debt game. Gets a thrill out of a good interest rate arbitrage opportunity. Will take out as many loans as possible if rates are low and the terms are favorable. Buys up assets only as a means of generating more collateral to take on debt to buy up more assets. Has the quote “If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem.” hung up on his wall.

The Debt Puritan

At eternal odds with our Debt Enjoyers is the Debt Puritan. Guys who are so opposed to the idea of borrowing money that they will refuse to do it under almost all circumstances.

You could offer them a 0% loan which they could stick in a money-market account to make 5% a year and they will tell you to screw off. If they have a mortgage, they’ll pay it off as quickly as they can afford to even if their mortgage rate is less than the current prevailing interest rate on cash or bonds. Their decisions surrounding debt border on being irrational.

A lot of different things might be motivating the Debt Puritan. For some, there could be a religious element where they see debt as amoral. Others may have a more prideful feeling associated with debt. Subscribers to old country wisdom of “never owing nothing to no man”.

I think there’s also a component of fear involved with the militant debt avoidance. An anxiety about something bad happening in the future which will leave them destitute because of their debt burdens. Removing debt from their life is a matter of choosing security over volatility.