Re: What is the endgame for a spendthrift nation?

Bert wrote:
> "Andy" wrote 
> > Given that tax cuts are just another form of borrowing (since the
> > budget is in deficit) this means that at present our economic health
> > depends on ever increasing borrowing to finance consumer spending.
> > What the article doesn't address is what the endgame is for this
> > scenario.  It seems obvious to me, though none of the experts are
> > addressing it, that a nation cannot successfully depend on increasing
> > consumer debt forever; at some point the minimum payments will be so
> > high that the consumers can't borrow any more.  Then the borrowing
> > will level off, and that will cause consumer spending to level off
> > and/or drop, and then the economy will go into a depression.  Or am I
> > missing something?
> >
> > Andy


. Money circulates. $1. could circulate 8 times in a year,
> resulting in 8x the sales, 8x the profits, more credit, etc. etc.  How many
> times it circulates isn't the point. The point is it circulates many times,
> which economists call the multiplier effect.
>
> In other words, the government, lending so much so cheaply is REALLY REALLY
> REALLY printing alot of money. 


Yes, this is something people don't always realize.  It's 
even worse than you state, in that the government doesn't 
have to print the money.  When a bank lends out a million 
dollars, whether as a construction loan or as a lot of 
little credit card loans, it's actually -creating- money. 
It is putting in circulation money that no one has ever printed.

This is where most of our money comes from, not from the 
printing press.

And, Andy, it's very scary.  Especially this year.  I've 
never heard "good" news couched in such terms before--not 
only are people not saving, they're increasing their debt to 
spend.

I've always thought the challenge of the 20th century was 
how to manage all the paper.  Maybe the challenge of the 
21st will be how to invent a stable-state economics.

Bonita