Curing an addiction is never easy. And when an entire nation--its federal
government, states, municipalities, and the people themselves--are all
hooked, ending the habit is next to impossible. But the United States is
hopelessly dependent on credit. And like stopping other serious
addictions, only one solution will work--go cold turkey. We should
What would that entail? No loans. For anybody.
For anything. The government wants to spend more than its tax receipts,
plus what it's got in the Treasury? It can't. Consumers want to buy a
home or car for more money than they have saved up? They can't. They'd
have to actually earn the money first. Of course, renting and leasing
would still be options.
This might sound like a crazy idea, and
it is. Eliminating credit would cause an extremely painful economic
shock. We would see tax increases or spending cuts on both federal and
state levels. A balanced budget would be required. Governments would
also need to accumulate a surplus for rainy-day emergency spending. For
consumers, current loans will have to be run-off over time and not
refinanced. Homeownership would also decline substantially--but that's
not necessarily so bad. People will just rent instead, and put their
extra income in a savings account, or investments, instead of a house.
There would be no more credit cards, of course, but debit cards would be
Businesses would also have to adjust. They could have as
much equity as they want, but no debt. Would this inhibit growth? Maybe
a little. It would certainly lower returns on capital. But growth going
forward would be due to on real dollars invested, not based on borrowed
This might seem like a revolutionary idea, as even
societies without money have historically used or relied on personal
credit. But prohibiting the collection of interest for loaning money is
an idea that has been around for some time. In fact, it's a central
of modern Islamic banking, based on the belief that since
money has no value in itself, it should not be allowed to give rise to
Could credit really be criminalized? In theory, yes.
But it probably never would be. The political will for such a move
would be practically nonexistent. It would involve an extraordinarily
difficult transitional period, including massive job losses, deflation,
and a deep recession as the government and population adjust. But if
Congress managed to embrace a credit ban, we would end up with an
overall economy that grows a little slower, but is incredibly stable.
All that systemic credit risk? Gone. That reward would be well worth the