U.S. Credit Reporting Firms Aim to Magically Make Us Taller

The bureaucrats at the Bureau of Weights and Measures are so stingy. Their unwillingness to shrink the foot means none of us can grow. If they would just cut the foot in half, we could all be 12 feet tall, or something like that.

Except that no one would be fooled by such a transparent attempt at magic. A foot is a measure, as opposed to a device of deception. Call it a veil. Changes in its length won’t make us taller or shorter. Reality always intrudes on attempts to deceive.

What’s true about feet is also true about money. In the 1960s, U.S. manufacturers feared that the stable dollar defined as 1/35^th of a gold ounce was limiting the competiveness of their exports. They quite literally felt a change in the value or “length” of the dollar would render them more prosperous.

Eventually President Nixon gave them their wish. Love or hate his decision to sever the dollar’s link to gold, doing as Nixon did was an explicit devaluation of the dollar. Manufacturers cheered? No doubt for a time, only for reality to intrude. You see, all production of anything is a consequence of global cooperation, and certainly global inputs. With the dollar having been shrunk, the dollar cost of everything soared. In other words, it wasn’t just oil that spiked in the 1970s as a consequence of the dollar’s devaluation. Most everything did. With the dollar smaller, the number of dollars required to buy things rose. For the manufacturers, the alleged gains from a cheaper dollar that they imagined never materialized given the rising cost of production in dollars. And the story gets worse.

Growing corporations are regularly in the market in search of finance to enhance and facilitate their growth. The problem was that investors were no more fooled by a weaker dollar than producers were. Figure that investors pursue returns in dollars when they put money to work, but with the greenback in decline, the willingness of investors to commit capital to always uncertain returns shrank too. Why risk wealth if any returns might come back in shrunken dollars?

It’s a long or short way of saying that fiddling with reality doesn’t mean that reality takes a break. No, reality always renders its verdict. Markets are reality personified.

All of which brings us to a recent announcement from credit-reporting firms like Equifax, Experian, and TransUnion that they will cease counting individual medical debt in their assessments of individual creditworthiness. On its face it might seem like a compassionate move. For a variety of reasons, individuals have over the years been hit with shocking medical bills that were wholly unexpected. Since the debt was in no way planned or expected, it just doesn’t seem right that these big bills would weigh down our credit ratings? Maybe, or maybe not.

Whatever the answer to the above question, it’s of no consequence in the actual marketplace. Reality, as previously stated, always has its say. Credit bureaus can erase debt from our profiles to make us appear a better borrowing bet, but only on paper. Those who actually part ways with real money will assuredly not be so blasé about what individuals owe. They won’t because money owed matters, and it surely factors into our creditworthiness.

Which means that somehow, some way the truth about our actual debt will find its way to creditors. This will be true even if the actual amount of money owed by debtors can’t be calculated. How is that? The answer is simple. If credit firms choose to provide inaccurate or incomplete information about what people owe, creditors will have no choice but to respond with higher borrowing costs to reflect the lack of clarity provided by the credit reporters.

In addition, it’s not unreasonable to speculate that one or more credit firms, having been awoken to the sheer stupidity of scrubbing credit reports of substantial meaning, will choose to report the truth. In other words, a decision by some to whitewash the truth will exist as a market opportunity for others to tell it. Lending is risky, and since it is, correct debt information is very valuable.

Bringing it back to money, though the U.S. dollar hasn’t been tied to gold since the early 1970s, it’s not as though gold ceased functioning as a market signal. It’s still traded every second of every minute of every day. Markets don’t sleep.

This matters in consideration of President Nixon’s attempt to trick markets with a smaller dollar; all the while being cheered on by witless PhDs and manufacturers. No one was fooled. At present a dollar buys 1/1923rd of an ounce of gold compared to 1/35^th of an ounce when Nixon made his fateful decision.

Markets speak every second of every minute of every day about the dollar. They report unceasingly on what Nixon, PhDs and slow-witted business types thought could be hidden. The same will be true if credit bureaus try to trick lenders.