As IF Times

link RBC Royal Bank Rates.

For anyone who has a credit card and makes monthly payments, this schedule is a cold splash of reality.  In the interest of full disclosure, credit card companies are perhaps obliged to reveal the true cost of borrowing to their customers.  On the most recent credit card statement, there was a matter of fact line that read,

“If you make only the minimum payment each month, we estimate it will take 23 years and 1 month to fully repay the outstanding balance…”

This of course is based on the generous 19.99% interest rate charged on the outstanding balance compounded monthly.  !!!  If that one line doesn’t make you want to cut up your credit cards or at least pay off your consumer debt as fast as possible, then you have too much money.  Unfortunately, those people that make use of monthly payments to finance their purchases are the ones least able to do this.  Living in a free society means the freedom to  live without arbitrary restrictions upon one’s activities.  That means you can drink yourself into a coma every day if you  wish, or go around buying everything in sight because it’s on sale and you “need” it. 

While for most people, the monthly nut of the mortgage payment may occupy most of their financial concerns, the hidden costs of buying that flat screen TV because it’s on sale, financed over many months and perhaps years can truly be scary if only they did the math.  The $1200 bargain can easily cost double that if financed by monthly credit card payments at the bargain 19.99% annual rate.   I think I’ll just live with the old black and white. 

Apparently, credit card companies charge such interest rates to offset potential losses from delinquent card holders.  This is like charging for the bathroom while giving away free beer at a sports event.  It’s a good racket, as long as they can get away with it.  It wasn’t too long ago that there were usury laws in effect to prevent this kind of institutionalized loan sharking.  The mob should protest the incursion into their turf.

If you extrapolate this scenario to the ongoing debates regarding budget deficits,  some really scary numbers pop up.   Without having to use the generous 19.99% rates offered by the credit card companies, assume only a 5% rate on outstanding debt.  If you apply that burden to the estimated outstanding U.S. debt of 12 to 13 trillion, give or take a few billion, the annual cost of financing without regard to any reduction in the principal is about 600 to 650 billion dollars!   The reality is, it will never be paid off.

Just as in the case of those unfortunate enough to accumulate crushing debt loads with their credit cards, the size of the U.S. debt burden has grown so big, it will never be reduced in the standard way.  At some point, they will have to write down the debt to creditors or give up stuff that was bought with the money.   Hmm, wonder how much the state of California would fetch in a fire sale.  In any event, this link  An Irishman abroad tells it like it is !! -)   gives a pretty lucid view of what’s going on in the world, courtesy of an articulate Irishman.