Here’s the BIGGEST Reason the US Economy Imploded (and May Implode Again)
Every week I get the same snail mail CitiBank-American Airlines credit card solicitation (C, AMR). The last thing most Americans need is more debt.
But then there’s the ultimate example of what caused the US economy to implode: impulse checks sent by credit card companies. What makes these items so devious? Let’s breakdown the mechanics behind this act of “financial engineering”:
That’s right. Just go ahead and write a check now. You can pay it off later.
In basic finance this means “spend money now” and “earn it later”. This backwards thinking the BIGGEST reason the US economy imploded and may implode again if we don’t learn the proper chronology for creating wealth and spending.
The devils in this detail are two-fold:
1) If you spend before you earn, you pay interest.
2) If you spend before you earn, you may never do the earning part.
If this financial philosophy sounds like it could do major damage on a larger scale, it does and did. Recently, mortgage lenders told prospective home buyers to take out mortgages before they had the income to afford it. On the largest scale, the US government has been telling us we can have whatever we want (e.g., entitlement programs, subsidized fossil fuels, wars, trade deficits, etc.) before we have the tax revenue to pay for it.
So, before you spend too many hours researching why the US economy is broken, simply check your mailbox for the smoking gun.