Criminalize Credit

Daniel Indiviglio

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 abolish credit.

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 okay.

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 money.

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 tenet 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 more money.

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 cost.

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