Monday, August 30, 2010

The bureaucrats will end up reducing personal debt but is it worth it?

Nice article by Star Parker over at Town Hall Magazine on financial regulation…

The federal government in its continual unconstitutional efforts to protect us, may end up “fixing” the over burdened credit card debt consumers have been struggling to pay. But is it worth it? The credit card industry is being limited to what it can do to protect itself from people that fail to pay back the money they have borrowed. They have introduced laws that limit credit card company’s fees, interest rates, and have generally positioned the credit companies as predators.

The fees that can be charged for credit have been capped and will eventually be reduced. Therefore, the credit available to consumers has been reduced. The fees that can be charged for cash advances have been reduced. Therefore, cash advances are being limited because it costs money to run those convenient ATM machines. It has become harder for credit companies to get their money back from bad debtors. Therefore, credit limits are being reduced and lower income customers are being denied credit.

So in the end, consumers will no longer be able to get the cards or cash they need due to the additional regulations. Free market credit dries up and cash becomes king, again. I guess that is good when you are wealthy and have a lot of cash. Instead of increasing competition in the financial sector, over-regulation is crushing our ability to get credit. No credit, no purchases without cash, and no expansion of small businesses that thrive on credit. Small business gets caught in the tangled web of regulation designed to “protect” the consumer. It is that law of unintended consequences.

So what we are getting is a stagnated economy, less choice and options for the average consumer to get credit, and the result is reduced personal debt. So the regulation does in the end protect the consumer by making credit unavailable and ending the consumers ability to get into debt. It comes with a price tag. That price tag is the loss of freedom and access to credit. But it seems that our government knows better how to manage our finances than we do. Just like healthcare, educating our children, planning for retirement, food intake, smoking, drinking, you name it, the government is much better at making those decisions for us.

The bureaucrats are reducing our personal debt and much more. The question is; is it worth it?


Galen said...

A credit card industry isn't as important as the people, though. It shouldn't need to protect itself from its customers, if it does then it would seem to be a twisted business. And do we need to be doing things like credit? Obviously there are some people responsible enough, but it is just as obvious that some aren't. Plus, the whole industry rips people off, if you pay at the minimum rate (which most people do) then you end up paying thousands more than the amount you spent in the first place. Cash, just like EFT (electronic fund transfers, ie. credit cards, debit cards, etc.) is just a form of currency. There are plenty of ways to avoid needing credit, such as saving money in the first place. To make it seem like credit is necessary is misleading. Debit cards work very similar with the exception that you already have the money, rather than taking it from a credit company and paying them back. If businesses need money to start off, that is a good reason to take out a loan from the bank.

Besides, the economy would suffer more if people were in too much debt than if they didn't have a choice of where to get credit from. And they aren't the ones saying things such as smoking, excess food intake, etc. is bad, that has been proven empirically. It goes back to the whole thing of responsibility.

Anonymous said...

Galen is right. If people aren't responsible it is the government's responsibility to take care of them.