Categories

Pragmatic Capitalism

Capital for Living a More Practical Life

Persistent debt burden hysteria

« Back to Previous Page
0

If debt is vital to grow an economy in a fiat system, then why do banks, politicians and the media actively engage in and promote policies that restrict credit growth?

I see an article published almost every week on how consumer or government debt is rising and that this trend should be stopped.

So is it just ignorance?

Marked as spam
Posted by Incognito 7
Posted on 08/12/2017 5:07 AM
92 views
Private answer

I’d say its they ignorantly conflate leverage with credit growth. Leverage is what is deadly (because once the tide goes out you see who was swimming naked), not credit growth per se, unless standards get so relaxed for sake of growth as it does cyclically in subprime.

Marked as spam
Posted by MachineGhost
Answered on 08/12/2017 9:10 PM
    Private answer

    But also the vast majority of people still operate as if we’re still on the gold standard which was the last fixed exchange rate regime. In that case, the constraint on debt was having enough gold reserves vs fiat and when that goes kablooey, you get all kinds of monetary crisis malarky. People remember the FUD of that more than they can wrap their rational minds around floating exchange rates and operational reality.

    Marked as spam
    Posted by MachineGhost
    Answered on 08/12/2017 9:12 PM
      Private answer

      Most people don’t understand basic accounting. We are taught that debt is bad, but we don’t ever consider that debt is just half of the balance sheet. And if debt enhances the asset side of the ledger then debt can be quite good.

      Honestly, I think it’s just that simple. Most people suck at finance and accounting.

      Marked as spam
      Cullen Roche Posted by Cullen Roche
      Answered on 08/14/2017 5:32 PM
        Private answer

        Agree with Mr Roche. There is productive debt and unproductive debt. Debt that allows you to get a better job (e.g., buying an automobile) to get more income than the car payment is productive. Debt that is a net loss is bad.

        Over the last 30 years, US debt / GDP has increased 60% — so obviously, most of the debt accrued was the bad (unproductive) kind. But since the financial collapse, debt / GDP has stayed about constant.

        Marked as spam
        Posted by DeltaV
        Answered on 08/16/2017 12:23 PM
          « Back to Previous Page