FISCAL ADVICE FROM PENNY WHYS:

Why People Spend What They Don't Have

A Twelve-Step Program for Debt-o-holics

Tell them to ease off on the credit high and you’ll likely be met with cross-eyed stares and sniggers. Not spend? How chintzy! What are you—a Puritan?: a Puritan today occupying a rung on the evolutionary ladder somewhat lower than a mafia hit man but higher than an accountant for Enron, in the estimation of vox populi, Penny notes.

Penny, who confesses she has used a credit card only once—and that entirely by accident—would find the whole spectacle amusing, if it were not slightly appalling.

What happened, she wonders, to the sturdy householder described in Longfellow’s "The Village Blacksmith"?

His brow is wet with honest sweat,
He earns whate'er he can,
And looks the whole world in the face,
For he owes not any man.

But at this point, I part company with those in financial high places who wonder why consumers don’t simply put their money in their shoes...and keep their head down. A drizzle has started up anon around the globe, they point out, and perpetual summer whites are liable to be ruined.

Far be it from me to disagree with the acumen of the set which collects fine homes like the rest of us collect lint on our sleeves.... But the advice seems a tad misplaced.

Not because it’s wrong, mind you, but because it’s couched in rational terms. It appeals to the consumer’s good sense. But that begs the question. It's as well to lecture a goldfish on the Heisenberg principle or ask your terrier what it thinks of that new IPO. Assuming that the advice can actually penetrate the dense fog of white sales, red-tag days, markdowns, give-aways, trade-ins and twofers through which the poor schmuck reels through his debt-ridden days, it assumes that the average consumer’s behavior is actually within his control.

But it isn’t.

By this I don’t mean to suggest that anyone actually held a point forty-four Magnum to his heated temples and forced him to rent-to-own the overstuffed, purple chrysanthemum-printed sofa-manqué on which he gratefully deposits his maxed-out derrière every evening—although personally I don’t know why else he would have....I mean that his consumption is no longer a rational choice made by a rational human being, It’s an addiction. And like all addictions, it’s driven by something else that needs fixing first.

And here I break off to grab at the coattails of those readers who dove for the exits at the first mention of the word "addiction." No, I say, stuffing them back into their seats, I am not about to turn your trusty Reckoning over to Dr. Phil or Dr. Laura; cross my heart, not even to Oprah or Dr. Chopra. I mean to fatten your purse but leave your persona alone. My therapy is fiscal, not Oedipal. Its goal is to point out—and remedy—the underlying reason why American consumers spend and will continue to spend whenever possible: which is that, in large swathes of their lives, they feel so utterly deprived of power, so derailed and dislocated, that compulsive spending is the only way they can reassert control—never mind if it’s a completely ersatz control borrowed from MBNA at a thirty percent variable rate per annum. The credit card sinner sins, goes bankrupt, borrows and then sins again. And if he falls to his knees at day’s end, it’s not in sackcloth and ashes or with weeping and gnashing of teeth, but only to mutter—forgive us our debts....

And why not? Ours is the empire, the power and the glory, deficits without end.....

But the truth is that your average Jane and Joe—to line them up in politically impeccable order—have never been less in control. And the uncomfortable little skeleton knocking about in the dark recesses of the Homeland’s collective closet is that the alacrity with which Yankus Ordinarius charges is entirely driven by the degree to which he is not in charge. And he is not in charge anymore of almost anything. Not of his home—mortgaged to strangers playing hot potato with exotic debt packages; not of his health—held to ransom by a larcenous triumvirate of hospital chains, drug cartels, and insurance conglomerates; and not of his education—administered in lethal doses over almost two decades of his life at rates that shoot up faster than a Swiss junkie at a free needle clinic.

When you think about it in those terms, Yankus is not a spendthrift at all. In fact, most of his money is squirreled away....only not for a tidy heap of nuts he can bite into in the future but for "big- ticket" items—mortgages, health premiums and college loans—that bite into him, instead. Month after month, year after year. Socially mandated "future savings."

For them he toils like a helot* in the mines. For them he remains so powerless over his financial destiny that it takes a fling at the car dealer or the mall for him to enjoy having money at all. Exhausted by life-long cohabitation with big debt, his financial cojones craves that weekly liaison with a cute little credit card.

And so you get the dipsomaniac of debt, staggering from one financial crisis to the next, until he passes out broke on the steps of his million dollar cracker-box in the suburbs.

And it is for him—or her—that Penny, thumbing through her well-worn Rule Book of Fiscal Sanity, comes up with the copyrighted Twelve-Step Program for Debt-o-holics.

Notice that the program does not appeal to the consumer’s rationality. Penny assumes he has none. Instead, like any program of religious conversion, it insists on the acknowledgment of a higher reality....and it insists on immediate and drastic action...without question. And it insists—before everything else—that the debtor admit he has a problem.

So, repeat after me:

1. We admit we are powerless over our addiction—that our Visa cards and our credit history have become unmanageable.
   
   
2. We believe that only acknowledging a reality more real than paper assets—especially those denominated in dollars—can restore us to sanity.
   
   
3. We make a decision to cut up our credit cards and follow Gold as we understand Gold.
   
   
4. We make a searching and fearless monetary inventory of our loans, defaults, ARM mortgage premiums and cumulative interest payments.
   
   
5. We admit to ourselves and to another solvent being the exact nature of our financial sins.
   
   
6. We are entirely ready to have Gold—or at least the ETF—in our portfolio. We convert our dollars into Euros at every dip.
   
   
7. We humbly ask to pay off our home equity line of credit.
   
   
8. We make a list of all loans we have defaulted on and become willing to forego Chapter Eleven filing.
   
   
9. We make direct amends to all our creditors excepting the state. There, we borrow as much as possible at a fixed rate payable in devalued dollars over the next thirty years.
   
   
10. We continue to take personal inventory of commodity index funds and cheap land in Latin America.
    
    
11. We seek through constant reading of the financial blogs to improve our contact with real assets as we understand them—whether bullion, coins, art work, antiques, or homes—but not including condominiums located in Miami, San Francisco, Greater Manhattan, and the suburbs of Washington, DC.
    
    
12. Having had a financial awakening as the result of these steps, we try to carry this message to other credit addicts, and to practice these principles in all our financial transactions.

But remember—thinking about it doesn’t help. Get out and take action.

Next time: The "good debt" trap no one talks about.

Signing off for now,

Penny, giving you the why’s of thrift, not just the how’s.