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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Ilaine who wrote (108730)6/14/2001 11:40:48 AM
From: GraceZ  Read Replies (2) of 436258
 
Excessive public debt is significant because it crowds out private investment.

We heard this a lot back in the early eighties when the Reagan tax cuts were first put in without offsetting cuts in spending and the deficit ballooned. Funny thing was that excessive public debt didn't keep us from having a couple of decades of spectacular economic growth (which in turn made a good part of that debt disappear).

It seems to me that private consumer debt has two major significances (is that a word?):

- if the borrower can't borrow any more, then there's no more purchasing power;

- if the borrower can't service the debt, then the borrower may default.



Consummer debt is self limiting in this respect. People as opposed to governments can't borrow way beyond their means for very long.

BTW you usually get more debt defaults and bankruptcies at the beginning of a recovery than in the beginning or trough of a recession at least according to my loan officer at the bank.

The great thing about the US is that we have lots of practice writing off huge amounts of debt. Remember the S&L debacle?

The real problem in the economy now isn't debt, it's profits. No one can figure out how to make 'em in a situation where everyone has access to cheap information.
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