Offering and obtaining loans is not charity

In our easy-money world of low-interest loans, many draw the conclusion that we should be able to borrow money just because we want it. Whether it is conventional loans for the purchase of homes or automobiles, or credit cards for buying practically everything else, terms are easy and cheap–or so it appears. This reflects the larger commercial picture as the Federal Reserve System has been keeping its interest rates low for member banks. This is designed to avoid the monetary disaster which is the likely consequence of the government’s fiscal irresponsibility. Annual budgets of more than a trillion dollars were bad enough; now the Obama Administration and the Democrat Congress have given us trillion dollar deficits!

The national debt now is more than $12 trillion (12,000,000,000,000), which is unfathomable in human terms. But what is clear is that it will never be paid off. In the meantime, the Fed is keeping interest rates low to avoid looming national bankruptcy.

But this is not sustainable. In a commercial recession that shows no significant signs of abating, our currency faces repudiation in world markets and, in due course, our own national market. No policy can keep the dollar sound when in fact it has lost its purchasing power.

If it’s any comfort to anyone, our national policy makers are as inclined to believe in fantasies about loans as all those Americans who moved into homes that they could not afford or avoided credit card fees for unpaid charges. Of course, that is no comfort at all.

Money, like any good in the marketplace, has its price. In a primitive barter system, we would be trading objects which for the most part are incommensurable. Money allows us to value the objects we want or need. But money itself does not, to state the obvious, grow on trees.

If one wants a house or a car, one has to pay for it. (At least, that’s what we all thought until the sub-prime market in real estate was cranked up by a combination of federal laws, ACORN law suits, and Fannie Mae and Freddie Mack credit terms.) If one wants money that one hasn’t got, one must likewise be willing to pay for it. This is plain justice for several reasons.

First, it belongs to someone else. However much one may long for someone else’s money, it is mere covetousness to imagine that one has a right to it. Just as one has no right to expect automobile dealers or owners to give one a car, or homeowners or mortgage companies to give one a house, no one is entitled to money from a bank or other lending institution.

Second, money is typically not lying around uselessly. It is invested in properties, securities or businesses that will yield a profit or dividend. The popular mythology of bankers sitting on hoards of money which they are selfishly denying to needy people needs to be discredited. No one in his right mind recklessly gives away money.

Third, money must be lent at a cost because there is no sense in taking it from a profitable venue and putting it into an unprofitable one. Money is not "free." There is a net loss for people who get back only the principal without the interest.

Fourth, loans must be repaid with interest to insure that the money lenders have a continual supply of money to lend to future borrowers. If debts are not repaid or the return falls short of where the money could have been invested more profitably, the capacity of the lenders is in question. Indeed, the capacity of borrowers to get money is seriously impaired.

In fact, the current artificially low interest rates have already pinched the market for loans. Lenders who do not wish to go out of business have found ways to protect themselves against a run on their funds by asking for more collateral or better credit.

Similarly, credit card companies try to protect their reliable customers by imposing more fees on the less reliable. Credit card users who pay off their monthly bills faithfully have been rewarded with no interest charges. Again, money must be flowing back to keep these firms in business. Where is the justice in the careful spenders subsidizing the careless ones?

The sooner we free ourselves from our addiction to easy money, the sooner our commerce will be healthy again. But that means facing facts about loans.