Escaping the Deadly Financial Rip-Tide of Debt and Speculation

Only those know to swim parallel to the shore can escape the destructive rip-tide of debt and speculative risk pulling everyone to insecurity and impoverishment.

Longtime correspondent Kevin K. recently shared an extremely insightful analogy of our financial peril. Those of you who swim or body-surf in the ocean are familiar with rip-tides--strong currents shaped by the contours of inlets and bays that pull unwary swimmers rapidly out to sea.

Those with experience of rip-tides know that it is futile to swim against the tide--those who try will only exhaust themselves, and be carried away despite their exertions.

The only way to escape the rip-tide is to swim parallel to the shore. This succeeds because the rip-tide is like a narrow river; once the swimmer moves out of the strong flow, the current's deadly pull quickly subsides.

Kevin described the economic and cultural rip-tide of the postwar years 1945 - 1985 as positive: anyone caught in this great tide of prosperity would be carried into secure jobs, homeownership, opportunities for attending college--all the critical elements of middle-class prosperity that were widely available to the majority of households.

This tide of prosperity was powered by the GI Bill that paid higher education costs for 20+ million veterans of World War II and Korea and later, of the Vietnam war, abundant factory and office jobs that offered relatively high pay to those with little education, and dirt-cheap (by today's standards) college. (CUNY, the public university in New York, was free until the late 1970s.)

Once the civil rights movement eliminated the most egregious sources of blatant discrimination (for example, banning Asians and African-Americans from owning property in certain parts of town) in the mid-1960s, the legal impediments to widespread social mobility (i.e. rising up to join the middle class) were swept aside. (To be sure, significant impediments remain, but these are social and economic rather than legal.)

My father once said that when he was a young veteran in the late 1940s and early 1950s, virtually any vet with a job could buy a house with a low-down-payment VA mortgage, as homes were cheap: three times a modest income was typical. To his way of thinking, those vets who stayed renters did so as a choice, not as a necessity. (He bought a relatively spacious house and supported four children and a spouse on the salary of a Sears appliance salesman.)

Kevin related that growing up in San Francisco, the working-class Irish and Italian households bought houses despite modest salaries--not McMansions, to be sure, but homes that built equity that could be passed on to their offspring.

Today's financial tide is carrying everyone to impoverishment via rising debt loads, over-priced college degrees, unaffordable homes and a loss of the cultural/practical skills that enabled those of lesser means to acquire capital rather than debt.

Only those know to swim parallel to the shore can escape the destructive rip-tide of debt and speculative risk pulling the unwary to insecurity and impoverishment.

Everyone swept up in the speculative tide of monumental student debt and dependence on state entitlements and/or Wall Street's speculative machine is not being carried to prosperity but to modern-day serfdom.

The only way to survive and prosper is to swim out of this tide of debt and speculation rather than fight it head-on. Don't take on excessive debt, avoid speculating in any financial game controlled by the Federal Reserve and Wall Street, buy income-producing tools and assets that you control, and creatively cut expenses to the bone so your household can live well on one income.

This essay was drawn from Musings Report 12. The weekly Reports are emailed exclusively to subscribers ($5/month) and major contributors $50+/year).

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