The reckoning is coming, and everyone who counted on “eternal growth of borrowing” to stave off the reckoning is in for a big surprise.
We’ve used a simple trick to keep the status quo from imploding for the past 11 years: borrow whatever it takes to keep paying the skyrocketing costs for housing, healthcare, college, childcare, government, permanent wars and so on.
The trick has worked because central banks pushed interest rates to zero, lowering the costs of borrowing more as costs continued spiraling higher.
But that trick has been used up. The next step–negative interest rates–has failed to spark the “growth” required to pay for insanely overpriced housing, healthcare, college, childcare, government, etc.
We’ve reached the end of the line on lowering interest rates as a way of borrowing more to keep our heads above water. We’ve reached the point where households and enterprises can’t even afford the principle payments, i.e. no interest at all.
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How are banks supposed to make money at zero interest rates? By charging outrageous overdraft fees and offering marginally qualified borrowers sky-high credit cards, and getting in on the federally guaranteed mortgage/student loan racket, that’s how.
The point here is the discipline of rising costs has been destroyed by easy money. Take higher education as an example. If there was no federally backed student loan “industry,” universities would have been forced to innovate 20 years ago to lower costs and improve the market value of their “product.”
Instead, they left their bloated cost structure untouched as it spiraled ever higher, and simply passed the higher costs onto students, who have had to borrow over $1.5 trillion to feed the bloated higher education cartel.
Borrowing more money to avoid dealing with soaring costs doesn’t solve the problem, it adds another problem. With the discipline of living within one’s means destroyed, there’s no pressure to innovate or make necessary sacrifices. The status quo becomes complacently bloated, lazy, sclerotic, unwilling to change anything fundamental and incapable of making the tiniest sacrifices. Why sacrifice when we can always pass higher costs to somebody who can always borrow more?
Even at near-zero rates, borrowing more runs into a brick wall. Even at zero interest, the principle and other costs of buying and maintaining vehicles, homes, etc. with borrowed money eventually exceeds income, and the borrowers default en masse.
Nobody cares where the taxpayers, renters, buyers or customers get the money; for 26 glorious years, they’ve somehow come up with the cash to pay the rent that tripled, the healthcare insurance that tripled, the property taxes that tripled, the college tuition that tripled, and so on.
