It's a wonder what borrowed money can do! If Shakespeare's advice to be neither a lender nor a borrower were heeded, the brakes on the consumer economy would leave long strips of burned rubber on the road.' Taint gonna happen, but most of us would agree that we'd rather be neither. Personally, I'd rather be the lender who was not paid back than be the borrower who couldn't pay back.

Several years ago Congress spent a great deal of time and legislative energy tightening the rules for personal bankruptcies... but not for Congress. But that hasn't stopped filings from those who would still like to borrow... despite bankruptcy. Those who never consider bankruptcy to be an option have no choice but to make their home/family economies work.

My parents never liked to borrow money for anything, but they made an exception. They had grown up in farm families that owned some acres of timberland and farmland. My Dad cleared trees for farmland during The Depression, and we pretty much lived off the land until WW2 and health issues forced Dad to seek work in the small town in south Arkansas where I grew up.

My Dad's town job made a daily round-trip back and forth over dark, muddy roads a dangerous chore, especially considering that wartime rationing made getting gasoline and new tires difficult to come by. My parents decided to move into town, and that meant finding a house and borrowing money to buy it. It turned out to be a good buy.

They paid off the note in fifteen years and lived in the house from 1942 until my Mom had to go to a nursing home sixty years later. Some borrowing makes sense since a family may require some things before it has saved enough to purchase them with cash. Debt that lets you do more, produce more, profit more, achieve more is good debt... creative debt. But the dark side of it manifests as debt slavery because it's one thing to pay as you go, but it's quite another to be unable to keep up payments to creditors.

Banks once helped loan applicants sort out necessities from luxury or unnecessary items. In the old days, the bank's loan officer might suggest that the applicant might be wanting to borrow more than family assets--would permit. These days banks/bankers can't be counted on for that kind of practicality. It may be flattering if the bank's loan department says you can have all the money you can carry home, so you may have to be the one who exercises discipline and good judgment. You'd better be.

Magical thinking takes place in all of us. We want something--an expensive new Rolex, a house in the fashionable part of town, an RV, or a Lexus, and magically, someone says, "I'll lend you the money to buy it." The magic continues because our present obligations/out-go begins to shrink, while at the same time our income/assets grow larger and larger until it is magically obvious that we can afford to purchase anything we want.

And the magic lasts right up to the day when we have to start paying for it. One facet of indebtedness that I'm FOR 100% is the home mortgage. I know I'm being silly, but it's always seemed to me that since debt creates dollars, my xx mortgage creates xx dollars, which the Fed then gives to the lender-which should mean that I shouldn't have to pay xx dollars to the lender, having already received payment for my house. But, be that as it may, most mortgage borrowers think it would be great to pay off their mortgage as soon as possible. Several years ago though I began to see this as a "bill of goods."It occurred to me that the sensible thing to do since you're paying for the house two or three times depending on the term and rates you'd be better off stretching payments out long enough to do what the Federal Government does.  

The Government borrows lots and lots of dollars, and it likes to borrow them--via Treasury Notes and T-bills (which are basically IOUs)--for a very long time. The amount of government spending virtually ensures inflation, which the Federal Reserve says it likes to keep at 2% annually. Last year, 2%. This year 2%. Next year 2%. Notice how that adds up. Two percent per year for ten years is 10% of one's income for the decade. Every ten years, subtract another 10%. But, few seem to realize that inflation's income shrinkage is destroying the value/purchasing power of their dollars and that there's something they can do about it.

Ten years ago I went to a meeting one night during which a program, offered for sale, would let a mortgage holder pay off a mortgage twice as fast as usual. The program seemed sound, and I think it would have worked. But after I went home and thought about it I concluded that most people won't follow such a program for fifteen years. Gradually it began to dawn on me that if you can't pay a mortgage off quite quickly, then stretch the payments out as long as possible.

My insight was: "Instead of paying off my mortgage quickly--with un-depreciated dollars--I should stretch those mortgage payments out until I--like the government--make the pay-off in inflation-depreciated dollars. Every year the debt I pay off is with dollars that are at least 2% less valuable than the year before. In thirty years I'll be paying off a mortgage with dollars that are 30% less valuable than when the mortgage originated.

In the long interval take some of the dollars that would have been devoted to accelerated mortgage payments and put them to work as hedges or as assets that will gain value as fiat dollars lose theirs. Since inflation is the fiat dollar's inherent weakness, let that weakness be an asset if you take as long as possible to pay off your mortgage.