Wednesday, December 23, 2009

"The only winning move is not to play."

Some of you may remember that line from the movie Wargames which came out back in the 80s, I think. We had a copy of it on VCR tape at one time - I'm not sure whatever happened to it but I had watched it many times. The premise was to show that nuclear war is stupid because nobody wins. Here's another lesson for you: racking up debt on credit cards is stupid, because only the bankers win.

Having to pay significant chunks of your spending money each month on interest and less-than-total balance due credit card payments is a self-fulfilling trap. The bigger the balance or interest (or both) you're having to pay the bank, the less money you actually have for food, groceries, local goods, etc., as shown by My Budget 360 in this chart:

In many ways, the current economic crisis is in large part a debt crisis. People used debt to pay 2009 expenses with 1970s income. The result is this chart, which covers 1965 to the end of 2009.

My Budget 360 goes on to point out something that I first learned in a book called Debt Virus some years back. Are you ready? The income to pay back these debts does not actually exist.

Yes, you read that right. Each time a bank makes a loan - any kind of loan, including credit cards - they don't actually have any money sitting around in a vault somewhere that they now consider "yours." It's all virtual reality. They make a line of credit up out of the thin blue air - but YOU have to pay it back with your actual real life income. It's one of the biggest scams in history.

Now, think about this. They make up billions and billions - trillions - of dollars of loans and credit card balances for people. Now, if you spent the money at some business and those business owners spent it back into the economy and it eventually came back to you so that you could pay your card or loan, that would be fine. But that's not the way it works - you have to pay back MORE than was spent, you have to pay INTEREST. Now, here's the question: Where does the money come from to pay interest, since it is NEVER actually created by the virtual reality process that makes the loan?

Answer: your paycheck.

You can never win at the credit card game, even if you don't actually carry a balance on your credit card, because the money to pay the merchant's transaction fees is NEVER created by the process, either. Both he and you pay it out of your income, he directly and you in the form of higher costs for the products you bought.

So not only is it impossible for everyone to actually get out of debt properly (by paying back their loan/card plus interest) because the funds don't actually exist for us to do so, but if you do manage to do this you are simply making it impossible for someone else to do so. Only so much money is created, it is physically and mathematically impossible for everyone to pay back that amount PLUS interest and funds for transaction fees that were never created.

Confusing, yes. Sorry about that, but I wanted you to see the nature of the con game that the banks are playing on you when they lure you into credit card debt. The only winning move is not to play. Avoid credit cards like the plague that they are. Even charities lose 3-6% of your donation if you do it by credit card. Better to send them a check. One new year's resolution should be to eliminate credit cards from your life - even if that means you make a pledge of austerity for this year to accomplish that. Don't play a game you can't win. It's no fun.

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