Credit in the USSA: United Socialist States of America

After I posted a comment on this blog I figured it would be a good idea to actually make a "Galt's Gulch".

Before I was aware of any of Ayn Rand's writings I was a proponent of minimal involvement in popular society in terms of credit (borrowing money) and government intervention in private matters (e.g. running a business).

In regards to credit, my thoughts at the time I was a teenager through my early twenties were partially driven by the seemingly vague requirements for being deemed Credit Worthy and whether such a "blessing" was worthwhile.

The most common points against my negative view on borrowed money were in favor of the big loans such as house, car and school. The arguments are such that without good credit it would be difficult if not impossible to qualify for loans for these big purchases.

For a short time I did jump into the credit game. I took a loan out for a car in addition to a loan for schooling. At one point I missed 3 consecutive months of student loan payments during a bout of unemployment and my credit score suffered. That was almost 10 years ago.

Since then I have actively tried to improve my credit score towards the end of qualifying for a home loan. I have been amazed at how difficult it has been to build good credit without taking out huge debts. I have been responsible and timely in the amount of money I borrow and when I pay it back. My method of operation has generally been one of saving money and then making the purchase. It turns out that my method is very uncommon and also unwelcome by those who dictate credit worthiness.

The three credit reporting companies apply virtually no worth to one's lack of outstanding debt in relation to one's net income. For almost three years I had less than $500 in total credit card debt and I was able to completely pay off my auto loan almost half the scheduled time. ...my credit score barely moved.

Cash flow and any surplus cash is not, and indeed cannot, be factored into your credit score based on the current rating system and information gathering used by Experian, Transunion or Equifax. How can this be the case? Isn't this an essential factor in considering someone's ability to cover a loan?

I went to a popular electronics store in early 2008 to buy a new TV. This may be an opportunity to expand my credit rating. The clerk offered a store credit card application. It had been a year or two since I tried expanding my credit so I gave it a shot. Denied in less than a minute. I paid for the TV in cash. Does anyone else see a problem with the credit system at this point?

If not, let me put it this way: Demonstrated fiscal responsibility is unimportant in the eyes of credit ratings.

Nowhere on my credit report will you see my 100% payment for a $1500 purchase. You will only see that I applied for credit and no new credit was added to my report. In other words, you will only see I was denied credit.

How does this relate to socialism?

My mother owns a house in Southern California's San Diego county. At a time when housing prices were skyrocketing and home loans along with home equity loans were abundant, I advised against taking out a new loan because of the risk of a drop off in prices. The long and short of it is she acted cautiously and responsibly. No new loans were taken out and now the housing market is in shambles.

Here is where I make the connection:
If she had taken out a new loan and been financially destroyed because of that risk, the political rhetoric of the day would apply to her. She would not be condemned for over-exposure to credit and volatile markets, in fact, quite the opposite. Emergency bailout money could be requested to "keep her in her home" that she can no longer afford at the inflated price now owed. Legislation to maintain a high price for her house would be considered. Good ol' price control. *sigh*

Fiscal responsibility is not considered important in America. In fact, it's quite the opposite. The vast majority of politicians act in favor of a Keynesian view of economics where the best thing to do for a healthy economy is spend. Saving is inherently counterproductive in this model and that's a key point and the reason a spending and/or stimulus package is considered essential in getting the country, and indeed the world, out of the current economic slump it is in.

Spending money without making more money (e.g. bailouts, bridge building, etc) means more money must be borrowed.

Soooo...the US government wants to spend money without raising taxes. Joy. More money to be borrowed from Japan, Saudi Arabia and China. They want to spend money to support the irresponsible credit habits of the government and its irresponsible citizens. If you are a responsible citizen you can't cash in on this attitude. Actually, you get burned. I get burned. My mother gets burned.

Those of us who would like to wait for reasonable prices for homes are out of luck. Sure, credit towards buying a home is getting more and more available, but even as housing prices fall there is the possibility of price fixing in the form of government guarantees on inflated housing loans.

So I'm saving my cash. I don't have a lot. I rent my home. I still purchase everything with cash. $800+ dollars in tires and various auto work last week. Cash. No credit. I'm not worthy of more and more and more credit. That's fine with me.

The dark viewpoint of the author of the Mises.org article I referenced at the beginning of this rant really got me thinking about optimism. There aren't many people who express a lot of optimism in any specific terms or details. The most common optimism is that Obama will bring about change. He won't. The propositions we see coming out of Washington D.C. are ideas that are proudly touted as FDR-esque or Lincoln-esque. That's old news. How about a change?

Change? hmm...here's something to try or at least consider:
Do not borrow money and credit to the point where life revolves around finances.

We won't see that kind of change. We'll see a repeat of the past and more blame passed around. The perceived reason for continued trouble in the economic world will be a lack of support for these "new-old" ideas and methods of borrowing and spending.

So again I have decided to pull out of the credit game. Cash and savings will be my concern. I'm not going to look at my credit score anytime soon. It's not like it's moved much anyway.

Galt's Gulch is a fictional place but there are people who have achieved a significant amount of that freedom in one way or another. I believe I'm on a good path to join them and drop out of this ludicrous game of clamoring for the status of Irresponsible Subservient to credit markets.

For myself, I think this may be the only sane solution until change comes. Obama (as Bush did before him) and the United Socialist States of America continue to support and even encourage the same behavior that culminated into an economic disaster of historic proportions. The names of the products purchased may differ slightly but it's all done with credit.

If anybody needs me I'll be in Eric's Gultch where the proper "change" is provided. Sorry, no credit.