Paying Off Debt Is Like Dying…

by Bill Bonner

Yesterday, George Osborne, Britain's Conservative Party finance minister-in-waiting, did something extraordinary. We can't remember anything like it. He told the truth.

"We are sinking in a sea of debt," he admitted. And on the very day when France's president, Nicolas Sarkozy, said he would not raise taxes, Osborne said that he would not lower them. In order to lighten Britain's debt, he'd leave Labor's 50% maximum tax rate right where it is.

Voters don't like hearing about debt. Politicians don't like talking about it. And economists don't want to think about it. And in a kind of collective suicide pact, they have all agreed not to worry about it. But debt is at the center of the world's financial troubles.

Paying off debt is like dying. You try to put it off as long as you can. But nobody runs an open tab forever.

This week brought news that Maine-based luxury yacht maker Hinckley, which has been building boats since 1928, is sinking. The problem is neither technical nor operational. It is philosophical. No one complains about the quality of the boats. Or even the prices (if you have to ask, you can't afford one). The company sailed along nicely until 1997. Then, the private equity hotshots from Boston took the helm. The old Hinckleys who ran the shop looked upon debt as though they were looking at a bottle of whiskey. A drink now and then did no harm. But watch out. Too much will sink you. In the 70 years they ran the place, they accumulated only $1 million of debt. But the new owners were dipsomaniacs; they multiplied Hinckley's debt 20 to 40 times. (Exact figures are not available.)

For much of history, failing to repay debt was regarded as not merely a breach of contract, but a crime. People who failed to repay their debts in timely fashion were thought to have stolen from their lenders; they were put in prison. In the Middle Ages even a dead debtor's children could be sent to prison.

Now, bankruptcy laws allow individuals and businesses to go to rehab. Then, they can stiff creditors again. Neither sin nor crime, debt is now just a cost of doing business. Read More