Wednesday, 22 August 2012

• Debt is ruining our lives...

  
  Like most people I know, the two things that I got from the education system I went through are the certificate and the debt from the student loan...  
  
  

  
  

  
  So much so that graduating without a debt to be paying for for the next 20 years is very much outside the norm...
  
  

  
  

  
  This has became a reality that many already accept as a fact of life, that most student finishing high school in my country don't even think of any alternative going forward in life...   including me, back then..
  
  
  Anyway, I'm not going to focus on student loan in particular here, but I was just pondering about debt in general, and how it impacted our lives...
  
  Looking around, I think that debt and a living person (in most developed and developing countries at least) is almost inseparable, nowadays..    Be it for education, houses, vehicle, etc, loans (and debt) is fundamentally a significant part of out lives...
  
  (If this statement is not applicable for you, then all I can say is...   good for you!)
  
  

  
  

  
  
  Now, considering how much loans and debt is part and parcel of our normal lives these days, one might think that it have always been like this...   But, is it?
  
  If I talk to the elder generation (in the case of my country), back then they don't really have such shackles chaining them for most of their lives...
  
  It is quite interesting when I ponder upon this...
  
  On one hand, I would see them living in a much simpler way of lives, without all the perks and luxury that I now take for granted, which makes me to pity them for not having such a good life that I (and my generation) enjoy...
  
  But on the other hand...    They really have no such financial burden that our generation is having..   And to think of it, it is not just a financial thing, but also a mental thing to...   
  
  We cannot deny how being in debt mess with our head...   Losing a job nowadays can lead a person into suicide mode..  
  
  The more I ponder, the more I see how this life reality that we have nowadays affects so many things, and it does makes me wonder, do we actually have a better quality of life today compared to back then?
  
  It is understandable nowadays why parent don't really have that much time for their kids...   It's because they need to work (and work and work) in order to be able to financially take care of the kids...  
  
  It is understandable why farmers, for instance, need to use pesticides and whatever chemicals there is, because they NEED their crops to be good to be sold...    Because there are debt to be keep being paid...
  
  It is understandable why an employer need to continuously squeeze the employee, because they need to maintain the performance and keep meeting the target requirement...  
  
  etc etc....
  
  Those older people will be telling me how it was different back then...
  
  One of the things that used to happen when I was young back in my parent's hometown is flood...
  
  I still remember that we used to get back to the village at the end of the year (because it was the school holiday), and we actually anticipated some flood to occur...
  
  

  
  

  
  Obviously it wasn't fun for my grandparents when it happen, but for us kids, oh yeah it was awesome...
  
  My grandparent house was a double-storey house, and when it is predicted that flood would be happening, the furniture and stuff were taken upstairs, and the lower floor literally become the swimming pool for us...      Yeah, those were the times...
  
  Anyways, because most of the previous generation there were people involved in agriculture, I did wonder, what happen to their source of income when flood happens?
  
  They'd tell me that it would certainly affect their source of income...
  
  and in a more general case, their source of income is very much dependant on so many factors...   If their crops didn't turn out good, they'll definitely have their income affected...
  
  Mind you, this is from a time where no chemical is used...   Protections come in the form of scarecrows, birds and other "natural" stuff...
  
  So....    What do they do whenever problems occured?
  
  Well, they'd say that the level of hardship in life would be higher than usual, but life goes on..  
  
  Now...   If I'm to draw a parallel to the reality of myself or most people that I know, that would be like...    If suddenly our employer make the announcement, "Well, we have a bot of a situation, and there will be no pay for you for the next three month"...    I wonder, what would happen in such a scenario...   
  
  Of coure, put to the side the issue of the responsibility of the employer or whatever from the example, and just focus on the fact that the source of income is affected...    Would we be saying, "well, we would be having a bit of a rough moment here, but no worries, life goes on"...?
  
  
  Here's my take...
  
  I think that the reality of living with a significant debt really put our mental state in a different state altogether...  
  
  The stress level and everything, especially whenever something goes bad...   or uncertain...
  
  
  But...    That's the reality of life right?
  
  When I think back about the previous generations back home, I think this kind of things is very much a recent reality...    Back then, they don't really have such reality of loans and debt like we do now...
  
  Of course, if I'm gonna be more global, to look at what happen in the western world, for example, such things came into reality much much earlier...   But still, if I'm gonna take the history from back then when I was still a caveman, it is still very much a very recent scenario...
  
  

  
  

  
  There wasn't any financial industry for such a long long time, before it came into existence in the 15th century...
  
  So, with respect to human history, the financial industry and whatever that came with it, is relatively a very recent thing...
  
  Realize it or not, this industry have change human lives very very significantly...
  
  One of which is, the debt lifestyle...
  
  
  I'm not gonna bore any of you on that subject, because I believe we all know this stuff already...
  
  By the way, this is the industry that makes the value of our currency to be backed by real gold (or whatever with real intrinsic value) is a thing of the past...  
  
  
  Anyways..   Long story short, this is the state that we are now in...
  
  

  
  

  Source (<-- of course it keeps ticking up)
  

  
  
  

  
  

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  Now, if we look at the country that sits at number two in the chart above, i.e. Greece, we know what had happened quite recently when things gone bad...
  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  
  Now, these people don't really want to riot and create trouble for no reason, but when you lose hope, when desperation comes to you, you might just act in a manner that you never thought you'd ever be in...    The situation is still dire for many over there...
  
  

  
  

  
  

  
  

  
  

  
  

  
  
  If you think any of this can never be you, I'd say that that is probably exactly whet these people think too, before all these happened...
  
  
  Looking back at the previous chart, it is interesting why Greece is deemed to be in a more trouble situation as compared to Japan...   There are many factors into that, and I'm not gonna touch into that here (as it would be too technical ang lengthy)...
  
  But, even when the trust on Japan's financial (and its capability to pay its debt) is still high, that is not to say that it is all A-OK in Japan either...
  
  Personally, I'd say it goes back to the financial system...   Now, the Japanese are hard worker, and they tend to save...   Japanese people have a very high level of savings...   That's a good thing, right?
  
  Well, not really...  Not for the banks, at least..   If you opens a bank, you'd know that if there's a lot of people deposite their money into your bank, while there's no one making any loans from you, that's bad news...    Because you need to be making money to pay for the dividens of the depositers...   
  
  In short, the cycle goes as follows; the bank give out loans, people invest in real estate (not to buy a place to live in, but just as investment), the price goes up, the trend continues (more people join in to invest), the balloon getting bigger, waiting for disaster to struck when the balloon burst...
  
  

  
  

  Source
  

  
  

  
  

  
  Of course what I'm presenting here is kind of oversimplifying of the issue, but most of the factors that leads to the financial meltdown of any crisis can be traced back to debt issue..
  
  Anyways, the aftermath?
  
  Homeless people, people living in tents, etc...
  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  
  So....   What else is new?
  
  What about the US?
  
  Here's a quick summary of the things that we have observed...
  
  

  Low interest rates, excess liquidity (1990s)
  
  Bank lent to sub-prime borrowers
  
  Housing boom
  
  CDOs come into the picture, act as booster
  
  Housing price skyrockets
  
  Interest rates rose
  
  CRASH!
  
  Borrowers go bust
  
  Lenders go bust
  
  Credit crunch
  
  Global recession
  

  
  
  

  
  

  A name that should be thought in history books alongside other big name villain in history
  

  
  Among those that are affected?
  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  

  
  
  And this is indeed a global crisis...
  
  If we see one county is booming magnificently, we can't really assume that it is destined to great things anymore, just like how we have saw Greece booming like anything previously, before the reality of the debt curse struck...
  
  

  
  

  
  

  
  

  
  

  
  

  
  
  I think this post can go on and on and on, where we can see how it affected Argentina, or Thailand, etc...   
  
  But I think this post is long enough as it is...
  
  If I'm to blame anyone, I'd point my finger to the financial industry...   or Debt industry, and whatever that supported it (like AIG and its insurance for the CDO)..
  
  I have no doubt the people involved would do it again (and again) if they have the chance to do it...   I mean, with maximum benefit with minimum (if any) accountability, that's a no brainer...
  
  In fact, for any of you that are willing to sell your soul to make huge chunk of money, it's a perfect place for you...
  
  

  
  

  Source
  

  
  
  Anyway...    Having pondered about all of these, though I have said that the financial industry is relatively new in human history, it has indeed been a long time since, say, the Medici family, and the banks and financial institution have became a fundamental part of today's system...   
  
  And the fact that they thrive on the debt industry, it is hard to see any of these problems to go away...   Sure, we can close our eyes to those that have suffered from the dire problem created by the industry, as long as we ourselves still have a comfortable life...   Sure, we can do that indeed...
  
  But....    Do we want to?
  
  That's the real question to ask, isn't it?
  
  
  

  • 9:56 AM
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