View Full Version : Crisis Cogitations

mick silver
13th November 2008, 12:59
There is no doubt that the world is dealing with a credit/debt deflation of historic proportions. It is worth spending a little time understanding how such events are precipitated. An economy, as in personal households, corporations and other entities, is financially sound when expenditures are less than incomes. The difference can be saved and invested to produce additional income and capital growth in the future.

When debt is introduced into the system, a different dynamic emerges. We are not talking about self-cancelling debt but new consumer debt which is spent in the economy. This results in expenditure exceeding income and delivers a boost to the nation's GDP. In the initial stages the boost to GDP is quite large but as time goes by and the debt total climbs higher, the cost of servicing that debt reduces the economic benefit received from new increases in the debt mountain

13th November 2008, 15:15
Regarding Debt: how the debt expenditure in the economy could boost GDP is a ridiculous concept. Who would care? If that concept were true then, the amount of credit card use during 2003/2004 should have helped the country and the world completely avoided the crisis we are in now. In reality the high use of consumer credit during that time was really masking a recession we were in. Using any debt model to stimulate the econony is actually a lying concept. You can't grow wealth when you have outstanding debt. The debt has to be paid off so income can continue to grow.

The writer of the article states that debt adds value to assets. On paper yeah, but in day to day life forget about it. Just because you buy a jag on credit, its' value isn't increased. No matter what kind of deal you get on the loan. Because it's a car, it's devalued the minute it's driven off the lot. No matter what cool features or amenities it has. I'm looking at a society that has been schooled not to save, not to grow wealth in a way that would sustain them in the future. Our society has been schooled to use credit to make all changes in our lives. Doing that really does short change your retirement funds and comfort in later years! I'm angry the bankers, and government are really pushing this stuff down the throats of a gullible people who won't take responsibility for anything they do anyway.

So debt is debt. It's NOT money. Even though our advisors and government want us to think it is.