This ongoing financial crisis is often referred to as a "credit crisis". I don't understand why it is called a credit crisis, when it actually is a crisis of DEBT.
Debt, Debt and more DEBT!!!
When I think of the word CREDIT, I think back to when I took high school accounting. I am 'dating' myself here, but bear with me.
There was a ledger, in which you recorded your credits and debits, a credit was your income, earnings or assets.
On the debit, side of the ledger was what you owed, or what had to be payed out.
Notice, in the word debit is the word DEBT, there is a reason for that. It's because that's what you owe, and you have to pay that debt out of your earnings or income.
When someone extends, what is oxymoronicaly called "credit", what you are really being offered is the opportunity to bury yourself in DEBT.
So, if we have an imaginary ledger, we take our income and put it on the credit side, we then take all the "credit" we have been extended and place in on the debit side. That's right, it is debt, it is not income, it is not an income supplement, it's not a vacation, or a brand new car. It is simply put, debt.
I acknowledge the simplicity of this example, it was meant to be, but it still doesn't change the fact. The fact is when someone give you credit, they are giving you DEBT.
Which brings my to my next beef with the use of the word 'credit crisis' to describe the current mess in the economy. What is really going on is a DEBT crisis, a crisis of excessive debt.
There is so much money owed by people, banks, countries etc., to people, banks, countries etc.,
that there is no way to pay it back.
Or, to go back to my trusty ledger.... the credit side is empty and the debit side is filled up.