Debt: Good or Bad?

Debt is spending future income in the present with a fee. As debt is so popular then one should assume it is desirable.

The promise to repay the debt and the interest is an obligation. That obligation means that others have a degree of control on you including recourse such as rights to your assets, your income and potentially your actions and freedom. As such, debt is giving up an element of your freedom. When debt becomes significant then your existence is dominated by servicing debt and you are welcomed to the debt slave club.

This nature of debt occurs at the individual, company and government level. Even government debt as notable examples where debt becomes a millstone for the population – with Greece becoming a specific example. In Greece, the creditors managed to limit democratic freedom in the birthplace of democracy for the benefit of the creditors, Germans, French et al. The Greeks seemed tougher against German tanks compared to creditors…….

The ‘too big to fail’ moniker has meant that private company debt is bailed out by Governments and so debt obligations go to the people. Austerity anyone? Even if you put all your cash under the bed and had no relationship with those too big to fail, you will still pay. To avoid the embarrassing and politically difficult situations of future bailouts, a new idea and enacted into laws and regulations in many countries: bail in. Now if a normal person lent any money to the too big to fail, like in a bank deposit, you get your money taken to pay other creditors – you are back of the line to protect the other creditors particularly those with exotic financial derivatives.

Not all debt is a gateway to slavery, debt can help with buying stuff that takes a long time to buy– like a house. After you pay your home loan, you have more freedom and can breathe a sigh of relief.

The financially astute have compelling arguments and experience that debt leads to prosperity. When one can borrow at low rates and invest somewhere else at higher rates (and maybe make capital gains) then obviously more debt means more wealth. There are a few tricks to this of course. Higher rates of return usually mean more risk and assets do not always have capital gains. The last generation has not really seen risk discrimination of debt.

All debt is an obligation that can really restrict freedom and should only be taken when necessary, can be serviced and there are true benefits. To live in our modern society, debt is seen as common and necessary just to live (e.g. education) however a society that is geared to enslave cannot endure.