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Too Much Credit?

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If you’re like most people, you probably think that you can never have too much access to credit. After all, you never know what might go horribly wrong or when an opportunity to really follow your dream might come up. A little scratch ready in the background might be the difference between the good life and something much less.

Then again, a lot of credit has a corrosive effect. In a world saturated with borrowing everything is judged against the expected return if the money was simply loaned out at market rates. It seems reasonable that where a little credit is a good thing a lot of credit, defining everything in the world, is the biggest enemy of both long-term thinking and a society looking to maximize happiness and human potential.

Logic says that where a little credit is good a lot could be bad, meaning there is an optimal point. Where is that? Where are we with respect to a good level of credit? It turns out that train left the station a very long time ago – and this may explain a lot of the problems in this economy.

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Credit Cards – Still Failing?

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Have you received your new chip-protected credit card yet? The new cards are supposed to eliminate fraud by requiring a PIN, stored in the chip, at every purchase. As Barataria reported last year, the credit card system has to be considered completely compromised after a large number of security breeches at nearly every retailer. The largest ones are reported, but we it is wise to consider every use of the traditional “swipe” credit cards which are easily duplicated once the numbers and names are stolen.

That’s why the new cards were mandated to be in use by 1 October. But the system is plagued by delays at all ends – and may not be as secure as promised. That’s a big problem for merchants who, as of the deadline, assume responsibility for a lot of credit card fraud.

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Stock Panic?

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“This is no time to panic. There’ll be plenty of time to panic later.”
– Author unknown (but I was sure it was Groucho Marx)

The stock market took a beating today, with the S&P 500 off 2.1%. This came for a lot of reasons but mostly because of a global selloff sparked largely by the ongoing meltdown in China. The question on everyone’s mind has to be, “How bad will it get?”

The short answer is that it can only get worse from here for a lot of reasons. Very few of them matter in the long haul, but who actually believes that the stock market is paying attention to anything beyond next quarter?

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Fear Doesn’t Glitter

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“All money is a matter of belief.”
– Adam Smith

Gold is taking a solid beating these days. It’s been slipping for a while, but when China revealed that it’s reserves were less than believed it really fell – quickly slipping below $1,100 per ounce when one mysterious trader dumped everything. It’s now more than a third off its 2010 peak and nearly everyone believes that it’s doomed to slip below $1,000 per ounce by the end of the year.

What happened? Isn’t gold the ultimate money in an unstable world? The short answer is no, and this has as much to do with the rise of the US Dollar as anything. But in the end gold is not as much a form of money as it is a barometer of fear – a commodity that appears to be in much shorter supply today than it was just a few years ago.

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Banks Amok? Perhaps Not

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The Greek Crisis has everyone nervous, and for good reasons. If this is what happens when a nation hits a financial crisis people around the world have to reasonably ask, “Are we next?” Every nation on this planet is deep into debt, although few are as bad off as Greece.

A lot of national debt is a threat to the world we live in for two related but distinct reasons. The first is that a nation loses the ability to make its own decisions and operate as a legitimate sovereign nation – which, in the case of democracies, means a de facto taking of power by creditors at the expense of the people. The second is that a large debt load has to be serviced by the government somehow which ultimately is a drain on the economy, reducing the standard of living and generally hurting personal opportunities.

With all this debt floating around causing so much pain it’s best to look at who holds it and how the world can get a handle on it.

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