Till Debt Do Us Part
by Tom Padula – 28 August 2011
The current problems with western world countries and their economic policies have existed for a very long time. In fact since Debt was invented. You can do more with less if you have debt. Debt, you see, enables you to get today what you should have tomorrow, if you only will have had the capital to realize what you want. Without debt, there is progress only when you are actually able to build or make or agree to work together with others… to then split the profits in appropriate parts. A little capital in the hands of the right people can go a long way.
We have the story of the three brothers (and/or sisters in today’s world), who were given an equal number of gold coins. The first one went out to spend them without a return and he quickly became poor again; the second one kept his coins under the bed and used what he had very sparingly, but could not change his life around; the third one used what he had and borrowed some more in order to do things with what he had and what he had borrowed. In this latter case, both capital and initiative enabled this brother to become wealthy.
If you borrow for the purpose of building your wealth or provide services for the benefit of everyone or make products that will give you a profit, then the Debt is a good debt. But if you borrow in order to give yourself advantages that you cannot afford, and from which there is no profit, then debt becomes a burden because you live life with resources that don’t belong to you and which has to be payed back eventually (and with interest!). Managing what you have and what you borrow as an individual, as a company, as a club or association, as a municipality, as a State or as a Nation is directly related to income and expenditure. There is no escaping the debt!
We know about people who steal out of necessity, or cheat to gain and advantage or do all sort of bad things in order to enable themselves to do what they cannot afford to do! Gamblers, punters, risk capital investors and also people who lend money to these types of people usually get into a lot of trouble. This happens when the borrower runs out of the money resource that did not belong to them and that they cannot pay back! To avoid personalized conflict, the institution of Bank was created. A Bank holds capital that belongs to investors who want a particular return for their investment, and traditionally without necessarily wanting to know how their capital was spent!
Those people who are confident that if they borrow what they need for a particular project and can actually repay their debt are the winners, the wealth builders. They enjoy in time the fruits of their labour, so to speak! Those people who do not rely on borrowings but are able to live well and do with their own capital will enjoy peace of mind and lack of pressure, because they don’t owe anyone anything. In the majority, these latter people don’t also have the hunger to achieve or produce since they are under no pressure… they can enjoy their ‘caffellatte’ without worries!
Governments or Institutions that don’t have debt don’t generally have the capacity to build infrastructures that propel their society into a vibrant, hardworking and modern communities. When there is acceptable debt ambition is fuelled because people have to work a little harder to achieve individual or common goals. They also need to work together in order to meet all their funded commitments, with loans attached to their tails! Unfortunately, sometimes these loans go towards maintaining the lifestyle of people who want to be on a permanent holiday, and have expectations and needs based on what the Government can do for them. If Governments cannot raise enough taxes to meet these costs, then the economy suffers… unless they have revenue coming from what is extracted from their territories. In other words the management of a national economy has to be based on the country’s ability to make more than it spends! Or to borrow in the short term but then have the ability to repay back debt!
In order for things to happen or be possible, the availability of Capital, the use of management of this resource and, in the medium to long term, the possibility of meeting all debt obligations have to be present. In the short term or for as long as is required, interest on borrowed capital has to be paid. There has to be a timeline, and there usually is, when all lenders and borrowers are able to say safely to each other ‘until debt do us part’. In economic terms, this is the best marriage!
P.S. A divorce occurs when one of the partners or both believe that there is an ‘irrevocable reason to split’, but that’s another article!!!
