So, after a couple years of printing money like there is no tomorrow and saying that it doesn't add to inflation, here we are - with the US moving to an inflation rate of 7.9% and climbing steadily - interest rate hikes will follow. Now, some of this is of course being blamed on the war in Ukraine and supply chain disruption, but this is more like a catalyst that speeds up the process, with all of these factors combining to compound on top of what is (for the average person who pays the price) gross mismanagement of financial resources. And, the numbers are from February, so they can't really factor in the effect of the war yet. That doesn't stop prices rising, nor blaming events that hadn't happened yet.
It is currently 147€ to fill the tank of my car (65L/17 gallons), which is $161 US, or $9.40 per gallon. And of course, the price of fuel isn't the only thing and for us, isn't the major thing - energy costs are getting insane in all areas and have been well before there was war.
I am confident that my family will survive this period, as we have survived financial hardships in the past, but I am far less confident in many other people I know, who over the last years have increasingly extended their debt obligations and continue to spend as if their pockets are endless. Perhaps they are, at least for the time, as it is also possible that there is "inheritance" support coming in early from parents, but what happens if this is a protracted economic period and that support is untenable?
Nothing good, I suspect.
Back between 2008 and 2012, I know several people who were essentially "bled dry" as they tried to maintain a lifestyle that they couldn't afford. In order to do so, they did things like sell grandparent's summer cottages in exchange for a new BMW and a holiday. While they made it through the GFC, it meant that the little bit of nest egg that they could have used in the lean times, was gone and on top of that, they sold low, as the prices were depressed due to the economy. What they got out of it was a depreciating asset that a few years later, they traded in for a new car, this time with a little bit of debt on top, as the value of the car didn't cover the next and, they didn't have the savings to spare to buy outright.
A decade later, the same people have changed cars again, have a far larger loan on it and therefore, more debt obligation, all while inflation rates are increasing well ahead of salaries and interest rates are on the rise. A to the edge, dream home mortgage that looked so attractive due to the non-existent rates a few years ago are, not looking so great now, especially when the costs to heat the home, fill the car and shop for food are all simultaneously rising.
Something has to break.
And once that break comes, the collapse starts, where first one and then the next household buckles under the pressure, setting off a chain reaction of bad debt. And, even if there are "only" a few percent of debtors who fold, that is enough to impact heavily on the financial markets, setting off more chain reactions, that drive rates up further, adding more upward pressure on inflation. This claws up the ladder, pulling more of the debt-burdened below the point they are able to service the costs.
I feel sorry for them, as while it is a large part their own fault, they have been heavily encouraged to do exactly what they have done by institutions and people who they have trusted to give them sound advice and have their best interests in mind.
"Best interest" is a funny term in this context, isn't it?
The best interest is interest earned on what you hold, not paid on debt. All debt interest, no matter how low is on a spectrum of bad, as it is always dead money going out. A "good interest rate" on a home loan is not good at all, it is just the least bad of the range. Debt is like cancer, there is no such thing as a good one. Yes, due to the way the economy works, it is almost always necessary to have some debt, like that of a house loan, but that doesn't make it good.
There is very little I can do in regards to all the drama that is happening in the world, so I try not to worry too much about it at this point and instead just help where I can, as I can. However, when it comes to personal finances, they are personal and therefore, fall into the realm of my responsibility. I can blame the condition of the world, but if I am not actively managing the resources I am responsible for, I pretty much deserve what I get. However, managing doesn't guarantee survival as there are lots of complexities in the mix, many that influence outcomes, but we have no control over.
Debt is like a slow moving plague that has been infesting the global economy for decades, slowly destroying all of the crops that generations have worked hard to sow over the years. Bit by bit, it is chewing through the stems and extracting the value to be contained in the bellies of the centralized swarm and, when it comes to money and power, their bellies are insatiable. Unlike a plague of locusts however, they do not die of natural causes or with the changing seasons, they need to be starved of resources.
Unfortunately, they feed on debt, and until that tube is severed, they will keep consuming, until there is nothing left. Eventually, they will disappear, but at this rate, it will only be because we won't be around to see it.
Taraz
[ Gen1: Hive ]
