Massive debt has been fueling our spending for the past six months, and our savings rate as a nation is still in negative territory.We know that consumer spending is presently the backbone of the American economy. And our have-it-now society is geared to encourage us to spend.

Sustaining the spending is the use of creating more consumer debt in the form of credit cards and borrowing the equities out of our homes. Visa recently announced that holiday shoppers charged eighteen percent more money on its credit cards during the three months leading up to Christmas than they did the previous year. This doesn’t necessarily mean we spent eighteen percent more this year than last.

It means that eighteen percent more was paid for with plastic. Have you ever been in a casino? The casino has you buy chips with your money. Then you go out and play their games with the chips instead of greenbacks (cash.) Why is that?

Could it be that you’ll spend more using those chips instead of cash? I wonder? When we use credit cards instead of cash, could it be we’re spending more than we would, if we used cash?

My concern is how this debt works on us as individuals and families. When we spend with our cards, and then catch up the spending by consolidating or taking the home equity loans, we’re borrowing from our future. Some believe that our savings rate doesn’t take into consideration the rise in equity values in our homes.

That argument is somewhat valid, except that ALL the homes are rising in value. When your house, your neighbor’s house and my house are rising in value, it costs more to buy your house today than it did yesterday. So when you spend that rise in equity on living expenses, you are losing your buying power for your next home.

The reason ALL the houses are rising is because of inflation. Inflation is at work. So the rise in value argument is not as valid when we factor this inflation into the scenerio.

Inflation is a term we use that really means the devaluation of the dollar. The purchasing power of our dollar is falling each year. We call it inflation, it’s a phenomenon created by the government’s ability to control the money supply. When they print more dollar bills without anymore underlying assets, it takes more dollar bills to purchase our goods than it did before they printed more dollars.

Since ALL the houses are subject to this inflation, the reason our house is worth more is because it takes more dollars to buy it. The reason it takes more dollars to buy it is because the dollars aren’t worth as much today as they were last year. This happens year after year. By spending this equity, we are spending a rise in value that isn’t an increase in our home value at all.

We are spending the difference in the value of today’s dollar vs. the value the dollar had a few years ago. Since it takes more dollars to buy today, the same house we bought then, we would need all the equity to buy a house of equal value. We’re not helping ourselves at all. We are actually going backwards when we practice this behavior.