But the way we use it IS

Edilberto Salazar, 35, married, with one daughter, is a man that I met over two years ago while working for an IT firm in Mexico. This man owed over $200,000 (£10,000+) pesos to the bank, more than $100,000 (£5,000+) pesos in taxes, plus his mortgage and personal credits at department stores. He is one of those guys that saturates one credit card, then applies for another to which he transfers all his overdue credit from his other card, and so on.

He is just one of many people I have met in several years that has the same problem. Endless calls and letters, harassment, and bad looks from friends and family. The truth is that he is just one in millions caught in the same situation.

Credit was created as a way of obtaining something we want *now* and paying for it later, at an interest, of course. Interest rates and other surcharges are the building blocks of banks, lending companies and other financial institutions. In fewer words: Banks charge for the “benefit” of lending you the money you need right now.

But it’s not just money nowadays, is it? Back in the old days it was mostly about a means to purchasing the home you’ve always wanted, or paying for a costly operation, or buying something you really need urgently. Nowadays the amount of things you can do by credit is enormous: Clothes, home appliances, cars, luxury items, handbags, mobile phones, phone contract payments, payments for other debt you may have in other financial institutions, education, even a haircut for goodness sake. Just about anything can be “purchased” on credit, and if the store doesn’t have its own credit line, you can probably still pay with your Amex, Visa, Mastercard, Maestro, etc.

But the concept of “free money” is what has started the massive wave of debt. We saw it recently with the credit crunch, but we’ve seen it previously countless times. And it’s not about individual people any more, it’s about entire countries indebted to others.

Why did this last credit crunch occur? Because of the sub-prime mortgages, the ratings of CDO. MRS, ABS and other deals, the lending, selling and packaging of these deals amongst banks and world-wide financial institutions, etc. They thought the gold mine would never end, and when it looked like it was depleting they found another way of marketing and selling the same deals as new products to investors, creating new indexes in the stock market, and eventually tying everything up in a way that a credit crunch became unavoidable.

But it’s not the banks fault, nor the investors, they are just looking for ways to make more money. The fault lies within the general public, as described by Tetsuya Ishikawa in his book “How I caused the credit crunch”. Credit allows you to have a house before you can pay for it, clothes without any money on you, and more importantly, operations and medical care when you do not own enough money to pay for them.

We all need money for certain things in life, but we also ought to have some decency (or put more straightly: intelligence) and analyse all options into consideration. Credit is a tool, an aid through difficult times, it is not free money, and it often results in a much higher cost than what you could have paid originally for it. Interest is a killer.

So if this opened a wound in you, try to sort out your problems, and lay off credit for life unless REALLY needed.

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Douglas Rushkoff answers these questions in a powerfully simple way:

Once upon a time, before the middle ages, we had an abundance-based currency. Everyone lived happily, you were issued vouchers based on how much grain you harvested, and those vouchers could in turn be used to pay for things. It was based on abundance… In contrast to our scarcity-based currency model of today.

The monetary system we use today was created so that rich people could stay rich by being rich rather than doing anything.

We live in an economy where the sustainance of the economy itself depends on growth at the rate of interest.

Where do you get the extra money? You’ll have to borrow that too.

Corporations? They were created to support this economic system as well.

This was the value of our currency right through the industrial age. This is the system still in use today. It is an outdated system, one that must be ruled out.

Why and how did this happen?

The following video by Rushkoff explains this in 15 minutes, why the system is broken and how must we change things to create a better economic system.

Via poortaste

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The Capitalist Economic System (as described by Wikipedia):

Capitalism is an economic system in which wealth, and the means of producing wealth, are privately owned and controlled rather than state owned and controlled. Through capitalism, the land, labor, and capital are owned, operated, and traded by private individuals either singly or jointly, and investments, distribution, income, production, pricing and supply of goods, commodities and services are determined by voluntary private decision in a market economy. A distinguishing feature of capitalism is that each person owns his or her own labor and therefore is allowed to sell the use of it to employers.

Summary:

• Wealth and production are privately owned.
• Each person owns his/her labor and can sell the use of it to employers.
• Each person’s wealth depends on the price set by his/her employer, or his/her own price.

The Socialist Economic System (as described by wikipedia):

Economically, socialism denotes an economic system of state ownership and/or worker ownership of the means of production and distribution. In the economy of the Soviet Union, state ownership of the means of production was combined with central planning, in relation to which goods and services to make and provide, how they were to be produced, the quantities, and the sale prices. Soviet economic planning was an alternative to allowing the market (supply and demand) to determine prices and production. During the Great Depression, many socialists considered Soviet-style planned economies the remedy to capitalism’s inherent flaws – monopoly, business cycles, unemployment, unequally distributed wealth, and the economic exploitation of workers.

Summary:

• Wealth, production and distribution are owned by the state.
• All economic terms, goods, services, quantities and prices are centrally planned.
• Wealth is distributed amongst the people.

The Ideal Economic System:

Why not merge both economic systems and define a system which a minimum wage is distributed amongst all citizens sufficient for purchasing basic food items, schools, living expenses, housing, etc.

Products, Services, Prices and Quantities are determined at national level as a guideline to all industry and commerce, but not regulated by law. Minimum levels are determined, nonetheless every factory, workshop, producer and shop has it’s own right to determine how much they will produce above the minimum level.

Each person has his/her own right to work, however, his/her work work will proportionately generate via taxes income for the government to distribute amongst it’s citizens and to increase general welfare.

As a brief example: This would allow someone not to work and receive minimum benefits to allow him/her to live a decent life. Those who put more effort into their work will be able to generate their own income, but will have to pay more taxes depending on the amount of income they have. People who barely make an income won’t be taxed as heavily as those who are generating massive amounts of money working in demanding positions.

The amount of tax would have a maximum level. For example, someone with a small wage will be taxed 1%, someone with a medium wage would be taxed 10%, someone with a very large income will be taxed up to 20%. That way it is beneficial for those with low incomes as they also receive help by the government to live, but it is also beneficial for those who want to work more as they receive a larger income, and it is beneficial for the government as they will receive more taxes from those who can pay them, support from the masses, and extra money to be able to reinvest into the nation and technology.

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Four things are needed: Being positive, helping, spending wisely, and saving. Things keep getting cheaper every time, specially gadgets and tech-related things. The most important factor is learning how to invest. This is related to everything, property, domestic appliances, schools, accessories, gadgets, computers, televisions, movies, subscriptions, services, everything you can imagine!

Point #1: Before spending on something, double-check if it is really something you need or would like, if it is, something expensive is not always the best. I once bought a top quality, dual-alarm, ipod/usb digital alarm clock which failed in the first 4 months, and the warranty would not be accepted outside of the USA. It was a stupid purchase, and I failed to do a detailed revision before buying it.

Point #2: If you are working, do a spreadsheet involving how much you earn, what you are aiming to buy and how much it costs, and then separate how much you need to save up during how much time to buy it. It’s really easy, and really effective! Then as the money comes in, separate it into different boxes, or your bank account, but keep track of how much you have saved for each thing on your “to buy” list.

Forget about credit. Most of the economy’s problems are due to credit “situations”, mortgages,  not earning enough to pay “the card”, and the similar. Saving and then buying is always the best strategy, so next time you think about charging something to your credit card… think twice! It’s probably best to get rid of the credit card and use debit only anyway.

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