The Bear’s Lair: Neither A Borrower Nor A Lender Be

According to a Fed report this week, U.S. consumer credit increased $28 billion in November, the largest rise in 16 years, with credit card debt rising at annual rate of 13.3%. This is of course a sign of consumer confidence, another sign that President Trump’s administration has revolutionized the U.S. economic outlook. However, it is bad news in the long run; the U.S. consumer is already over-indebted, as is government as is business. We need to restructure capitalism so that people don’t binge on debt every time there is an economic uptick. To do that, we must reverse many of Maynard Keynes’ precepts.

The traditional view of borrowing money was expressed by Polonius in Shakespeare’s “Hamlet:”

Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.”

Polonius is often regarded as a pompous old fool by literary critics, and indeed is described as “tedious old fool” by Hamlet himself. However, the ineffective soliloquizing Hamlet, who ends up wiping out half the court by mistake, is one of the lowest-IQ Shakespeare heroes, so his view should not be taken as gospel. Polonius’ advice given above looks pretty good to me. Loans to friends always cause trouble and heartache. As for borrowing — and this is where Polonius is a much better economist than Keynes – it allows you the pleasures of consumption before you have earned it, slackening effort and often leading to a vicious cycle of increasing debt, financial difficulties and spiraling misery and despair.

Given that the appropriate attitude to debt was known more than 400 years ago, why are we still over-indulging in it? The debt glut is not just a problem of the ignorant masses. Governments borrow far more than they should, pushing up their countries’ debt ratios when there is no war, nor any other conceivable need to do so. Companies borrow far more than they should, even in some cases liquidating their book equity to buy back shares, surely one of the most short-sighted corporate actions in history.