Wise Accounts Blog

In medieval times people would sell themselves as slaves to avoid poverty and dying of hunger.

Today people mortgage their lives for an ever so elusive lifestyle. All because of marketing propaganda which indoctrinates the weak that unless they have this, that and the other they are nobody on the status scales.

If the cost of housing and cars doubles every ten years while your purchasing power goes backwards because of inflation and competitive foreign labour something will snap.

In past generations people would save for 20 years to buy a house or a car or both. In that time they had plenty of time to decide whether they really wanted it, whether the sacrifice was worth it, whether they would indeed reach their goal or whether they should make other arrangements.

Today the popular wisdom is: I want it and I want it now. Here comes the age of credit; how to enslave your future for the glitter of the ephemeral.

Because all people can see are the monthly payments (never mind how many payments there are...) as long as it fits in the monthly budget - let's go and buy it!

This is the very thing that fans inflation because in a world where people pay cash for everything there is a limit to much people are willing to pay and can pay for everything from houses to cars and clothing, etc...

In a world where everybody has access to credit that limit is lifted. What then takes place is a race for greed on the part of suppliers who can charge more and more as long as the new model supersedes the current model because of (useless) new features. Furthermore appliances are designed to break down within five years when they could last twenty years - just avoid saturating the market.

People were told it's OK to buy on credit if what you buy increases in value - that is housing... yet in the last 5 years we have seen that there is a limit to this also. A housing bubble is about to burst or at least deflate like a lead balloon.

You have situations where the collateral value of an asset is less that the amount of the loan. If you borrowed to buy shares that calls for a margin call. In residential real estate the banks are feeling a bit fidgety. No wonder they are not using the cash recently printed by reserve banks to offer more loans but rebuild their balance sheet instead...

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