>The difference between those who live in the capitalist world who thrive
>and those who merely survive is capital spending, which, as a matter of
>course, must be financed: most of us can barely buy a car with cash, let
>alone a house. For most of the last chapter of this story (say, 150
>years?), access to capital (in the form of credit) was limited to
>corporations and (some!) white men. That has dramatically changed in
>the last decade or two, mostly to the good, and you still haven't shown
>a positive correlation between these financial innovations and personal
>ruin.
Have you looked at a chart of the personal bankruptcy rate lately? Highlights:
personal bankruptcies per 1,000 persons
1980 1.26 1985 1.43 1990 2.87 1995 3.32 2000 4.44 2004 5.39
There's a lot of suffering and ruin behind your average bankruptcy, and the rate is up more than fourfold in 24 years, and over 60% in nine years.
The business analogy is very flawed. Borrowing to buy an income-producing asset is one thing; the debt, in most cases, is ultimately self-liquidating. Borrowing to buy a consumer durable is another; it yields a stream of "utility" but you can't service your debts with utility, you need labor income. (The flow of funds accounts wittily account for consumer durables as an investment and not a form of consumption. Right.)
There's nothing wrong with borrowing to buy a house or a car, as long as the price of the house or car is reasonable and the debt burden comfortably manageable. A lot of U.S. households are buying overpriced houses and excessively luxurious cars (measured relative to their incomes, not some moral standard of appropriateness) on the assumption that rates will stay low and houseprices and resale values will stay high or rise. It's very risky. American household balance sheets are "capitalized for propserity," to steal a phrase from Jim Grant (whom I rarely quote, because I'm not a permabear).
>I think it's pretty clear from the current story forwarded that, in this
>scenario, it's the medical bills and your so-called 'insurance' that are
>the root of the problem and not your debt service:
If we had a humane welfare state this would be a lot smaller problem, but we don't so it's a big one. In the U.S., credit is often a substitute for a civilized welfare state. Thank god we've got an indulgent bankruptcy code, though the Republicans are working on that right now.
Doug