Tuesday, July 7, 2009

Federal Reserve Marketing 101

Our economic system is critically dependent on the free flow of credit, and the consequences for the broader economy of financial instability are thus powerful and quickly felt."
– Ben Bernanke, chairman of the Federal Reserve, Jan. 13, 2009
The above quote sticks out to me in a unique.  Unlike most mainstream economists and other media heads, I see what Bernanke said as nothing more than a marketing ploy and a faint grab for relevant power.
The reason behind my saying this is really simple: you do not need debt in order to succeed in life and business.  While his words are probably true overall, given our current economic stupidity, you can build a business and spend your entire life without going into any kind of debt.
It is a pretty crazy idea, I know.  You will notice that I am a fan of Dave Ramsey, a man who strongly advocates against debt and exposes the unethical business practices of banks at every turn.
The notion that debt is necessary in order to have financial stability is ridiculous and largely a recent phenomenon.  It was not until the mid-1950s that the first credit card was introduced to New York City elites.  The brainchild behind the modern system of electronic credit cards (originally slips of paper were sent to banks from the seller) will tell you that his ultimate objective was to eliminate paper money (a bad idea by any stretch of reason, but that is another entry).
Loans certainly have been around for a long time, probably since human beings stopped hunting everyday and started settling down into organized societies, but they have often been looked down upon by all societies up until Western society.  These days, we embrace debt and view it as some form of magic cash flow, ignoring the simple fact that cash flow actually comes from income, not credit.
I have personally vowed to never go into debt again.  I plan on buying my first home with 100% of the money on hand to pay for it.  It is a pretty crazy idea, I know, and it will take a lot of time, but I think it is worth it.  Considering that the banking system is relying more and more on your FICO score, which is nothing more than another marketing tool for debt and utterly worthless, I may end up having to do so anyway.  My wife is on board with this as well and I know that God will bless the two of us in this manner if we are able to do it.
So what does that mean for me, if I never go into debt every again?  Quite simply, it simplifies my life and allows me to own everything I have outright.  And lastly, it allows me to never have to do business with a bank that employs shady business practices to keep you in the hole and in their pocket.
So Ben Bernanke, a man who I am told has never held a significant private sector job, is nothing more than a foolish idealist marketing the product of his clients.  Stay out of debt and the banks will not be as significant a factor in the economy.  And once that happens, the real scoundrels will be exposed in Congress for the hypocrites that they are.