What are we Forgetting?

Benjamin Franklin left us with an abundant and memorable legacy. Among his many pithy sayings was this one; Creditors have better memories than debtors. It means that those who are lending money to us won't forget that they are doing so. Whereas, often, those who have obtained wherewithal through a loan, become forgetful of that service. It is why the bank will send us a notice when payment is due lest we forget. It is why vendors invoice us for a service provided. Just a little reminder that they haven't forgotten.

An economic and financial system such as we, in the modern world enjoy, is based on trust. Rarely do vendors (lenders) ask for payment up front. In the case of large loans, lenders will ask for collateral, but not always. The U.S. Government borrows from its citizens and foreigners every week without having to put up an iota of collateral. And these loans now run in the trillions of dollars. Most people have no idea where a bank gets funds to lend. It lends out the money of its customers who have checking and savings deposits with them. So, when your neighbor obtains a loan from your bank, remember it's your money that your neighbor is borrowing. Why have we forgotten about this fact? Because the government (FDIC) guarantees bank deposits (checking, savings and CDs) up to $250,000.

But, we do remember and become fearful when our bank has made too many bad loans. During the recent financial crises of 2008, depositors did line up to withdraw their money in some cases. But because the government was quick to reassure people that banks would not fail and created the TARP bailout, the country was able to avoid a disastrous "run" on the nation's commercial banks.

While the "crises" is over for now, people forget that the central problem continues. While banks have returned to a semblance of making responsible loans, our government continues to spend more than we take in, borrowing to make up the difference. Be assured that at some point our creditors will make demands. Where are we spending so much money? Mainly in two places; Social Security and The Patient Protection and Affordable Care Act (Obamacare). Fix these and the problem will gradually fade away. If we don't fix them, Social Security and health care will fade away (not so gradually).

Go Forth and Do Good

David J Winter