Saturday, October 18, 2008

If it walks like DEBT and talks like DEBT, why call it credit ?

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.


  1. One of your best Penny!

    IMO they use the word 'credit' because the word 'debt' has negative connotations.

    These injections they've been giving the massive private banks aren't going to fix anything - outside of creating more debt.

    If people have no jobs, or their incomes become irrelevant in the face of runaway inflation there will simply be NO one to pay back all this 'debt'.

    It's a bloody mess.

  2. good day!

    thanks maggie and nobody

    I agree with the use of the word credit as intentionally misleading.

    Debt has negative connotations alright, most people are scared shitless of burying themselves up to there eyeballs in it, and for good reason.

    So, how better to manipulate the populace into doing just that, present debt as a positive, by using manipulative words.

    Notice they never really talk about the loss of jobs, lowered incomes as contributing to the mortgage crisis. All you hear about are people bought homes they could not afford.

    But why?
    could they afford them at the time of purchase, then lost their jobs?
    or there hours were cut?
    the media doesn't connect the dots, and it always seems the mass of the people don't bother either.
    It is definitely a sound bite world