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Cheap Money and American Poverty

Posted By Daniel Greenfield On January 27, 2014 @ 9:38 am In The Point | 5 Comments

Monty at Ace of Spades has an accurate enough angle on poverty and debt.

Poor people don’t think about money in the same way that more well-off people do. When you’re poor, money — and the lack thereof — informs your every moment, waking and sleeping. You know exactly, at any given moment, how much money you have, down to the penny. How much in the bank, how much in your jeans, how much in the coffee can on the counter at home. Every purchase is a choice — if I buy this six-pack now, that means hot dogs instead of hamburger for dinner tomorrow; if I pay my cable bill, that means that instead of dinner and a movie my best girl and I get to spend a night at home watching the TV. You triage your bills — rent comes first, then heat. Then…you decide: cable or cellphone? Who can you put off the longest? How long can you float things?

You start with the credit cards because you figure you have the right to treat yourself once in a while. If you have to sit at home instead of going out, what’s wrong with having a nice flat-screen TV to watch? And then the car went south, and that blew a $500 dollar hole in your budget, so you had put your groceries and gas on the credit card that week just to make ends meet. The kids needed new clothes and shoes and supplies for school. You’ve got to pay the minimums on the card just to keep things going, and the balance just creeps higher and higher until you’re butting up against the limit. Then you get another card, and maybe the old lady gets one too. And pretty soon…well. You wake up at night in a cold sweat because you know that bankruptcy and ruin are only a breath away. It’s not just a question of if you lose your job or get sick and can’t work; it’s a question of losing the overtime hours you’ve become accustomed to, or if the wife goes back to part-time instead of full time. You realize you’re barely treading water as it is; it would only take a small wave to drown you.

The technical side of this is that American poverty is a pretty strange place. The value of the dollar has been trashed to make Chinese imports very affordable at the cost of American jobs. You have a large population of the unemployed whose lifestyle is subsidized by buying cheap Chinese products, at the cost of having jobs.

And then you have “cheap money” in the form of debt with a structure that punishes savers. The people making comparisons between how poor Americans lived during the time of their grandparents and today are missing the fact that the strategies that worked back then either no longer work or have much higher barriers. Just about any form of business requires jumping through more hoops than ever before.

Interest rates were vaporized in favor of cheap money. We’re living in a debt society where every institution is borrowing money to lend to someone at the bottom of the pile and then reselling that debt to someone else. Saving money by investing it works at the top, but saving money in a bank account provides little except a rainy day fund constantly eroded by inflation at the bottom.

With “cheap money” as debt readily available and little incentive to save money except to deal with the next crisis that you don’t want to think about, the high debt outcome is inevitable.

The real problem isn’t poverty, it’s an artificially subsidized system where the poor can still eat and have cable and even smartphones, but not jobs. These policies have has avoided unleashing the political outrage that would have overturned both parties and instead created a country where a lot of people have trouble finding work,  but don’t hit bottom, where poverty is constant, but doesn’t mean what it did a century ago.

The people who have been hurt the most have been kept pacified even while they were slowly being displaced.


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