Why debt is a good thing

Debt lets you have stuff without having the money to pay for it.
Why wait until you have the money to buy stuff when that may never happen. It's smarter just to borrow the money so you can have it now.

Bob wrote:Debt lets you have stuff without having the money to pay for it.
Why wait until you have the money to buy stuff when that may never happen. It's smarter just to borrow the money so you can have it now.

Right!

I'd love to be owned.

Thinking debt is a bad thing is just some stupid idea the rich right-wingers came up with to make themselves richer and keep the rest of us poor.

There must be credit creation for growth to occur.

Learn something today ...

http://www.forbes.com/sites/johntharvey/2011/07/02/learn-to-love-the-deficit/

Margin Call wrote:There must be credit creation for growth to occur.

To be serious for a moment.

Yes generally speaking that may be true. But it's not always the case.
I had a different business model.
I started out with a few hundred dollars in capital. I bought goods that I sold for a profit. I then used that profit to buy more goods which I also sold for a profit. And I kept flipping it over and over for the rest of my working life.
BUT, I was growing the dollar amount of my capital with each step. This allowed me to invest in both more valuable goods which yielded a greater profit, or to buy a larger and larger quantity of goods which also yielded a greater profit.
I did it all without borrowing and without the need for credit.

Of course I realize this business model cannot be applied to all situations. And I realize that there is of course a need for credit.

My beef is not with borrowing per se. My beef is with borrowing when there really is not sound evidence that the debt can be repaid.
For example...

http://dailycaller.com/2013/03/29/will-the-govt-backed-fisker-file-for-bankruptcy/

That's what happens when you "learn to love the deficit" as Sal does.

Bob, I'm talking about aggregate demand, not just your personal situation. We just witnessed what happened to aggregate demand when the private sector had to deleverage. The government paying off debt would do the same thing: recession. Bubblenomics 101.

Margin Call wrote:Bob, I'm talking about aggregate demand, not just your personal situation. We just witnessed what happened to aggregate demand when the private sector had to deleverage. The government paying off debt would do the same thing: recession. Bubblenomics 101.

The Fed has pledged to keep buying about $45 billion per month of federal debt until the unemployment rate gets down to at least 6.5%.
When do you anticipate that will happen?

Margin Call,

Did you watch the David Stockman interview on Morning Joe linked in another thread?
What's your reaction to Stockman's argument that the Wall Street bailouts were not necessary?

http://www.nbcnews.com/id/3036789/ns/msnbc_tv-morning_joe/#51391094

Bob wrote:

Margin Call wrote:Bob, I'm talking about aggregate demand, not just your personal situation. We just witnessed what happened to aggregate demand when the private sector had to deleverage. The government paying off debt would do the same thing: recession. Bubblenomics 101.

The Fed has pledged to keep buying about $45 billion per month of federal debt until the unemployment rate gets down to at least 6.5%.
When do you anticipate that will happen?

No idea. A couple of years if we maintain this momentum:

Bob wrote:Margin Call,

Did you watch the David Stockman interview on Morning Joe linked in another thread?
What's your reaction to Stockman's argument that the Wall Street bailouts were not necessary?

http://www.nbcnews.com/id/3036789/ns/msnbc_tv-morning_joe/#51391094

I haven't watched it yet, but Fannie Mae just posted its largest profit ever.

And there's this too, Bob:

*PORSCHE MARCH U.S. VEHICLE SALES ROSE 41%

http://www.npr.org/2011/07/22/138590769/debts-impact-could-be-worse-if-interest-rates-rise

A deficit is relative. It can be a problem when GDP is stagnant, and it is a small problem when GDP is growing. You compound your problems in a recessionary cycle to be contracting an economy worrying about deficit. The proper time to worry about deficit and cooling down an economy is during boom times......moderation.

I think you've about convinced me that continuing to pile up government debt is a good thing.
And it's got me to wondering why the states have constitutionally mandated balanced budgets. So many of the states are hurting for money and it seems to me they should start running huge deficits and pile up debt like Washington because there's no doubt that would fix their money problems. Especially states like California and Florida.

ZVUGKTUBM wrote:

Sal wrote:Learn something today ...

http://www.forbes.com/sites/johntharvey/2011/07/02/learn-to-love-the-deficit/

That was very interesting. I wish Margin Call would read it and comment.

Everything he says is true as long as the herd has confidence in the government and its currency. Printing money has its limits.

Bob wrote:Debt lets you have stuff without having the money to pay for it.
Why wait until you have the money to buy stuff when that may never happen. It's smarter just to borrow the money so you can have it now.

That may be true, but I am proud that I have no debt and everything I have is owned. It took me long enough to get out of debt and I do not want nor ever intend to have that ball and chain again. I have an excellent credit rating so it's not a matter of securing a debt if I wanted to, but i just do not have that desire. Whether debt drives the economy or not really does not bother me because I am very comfortable living without debt.

And Oh BTW, I am not rich by a long shot.

2seaoat wrote: The proper time to worry about deficit and cooling down an economy is during boom times.

I'll ask you a similiar question to the one I asked Margin Call. When is this next "boom time" supposed to happen? And what do you foresee as causing it to happen? The last "boom time" was the result of a real estate bubble.
Which bubble is going to produce the next "boom time"?

Ghost_Rider1 wrote:

That may be true, but I am proud that I have no debt and everything I have is owned. It took me long enough to get out of debt and I do not want nor ever intend to have that ball and chain again. I have an excellent credit rating so it's not a matter of securing a debt if I wanted to, but i just do not have that desire. Whether debt drives the economy or not really does not bother me because I am very comfortable living without debt.

And Oh BTW, I am not rich by a long shot.

First we had neoconservatism which had it's share of people in positions of authority and influence to tell us the way to conduct foreign policy is to adopt this ideology that we need to become the policeman for the world.
And now we have something we could call neoeconomics which has people in positions of authority and influence (the krugmans, the summers etc) with this crap that tells us debt is good for us.

Both are predicated on some really bold assumptions. The first, that the world is gonna tolerate us being it's policeman and cowtow to it.
And the second theory, that this debt fueled attempt to rescucitate the economy is going to restore us to economic greatness.

I'm certain we'll get to test the second theory because the Washington politicians WILL keep adding to the debt.
And all I can say about the first theory is "how's that workin out for you".

Sal wrote:

Bob wrote:


And now we have something we could call neoeconomics which has people in positions of authority and influence (the krugmans, the summers etc) with this crap that tells us debt is good for us.

You're fucking nutz.

Krugman is a voice in the wilderness.

Austerity is the order of the day, which is why the economy remains in the shitter.

If it wasn't for the stimulus (which was too small given the situation), we'd be sitting at 12% unemployment or worse.

Look at Europe.

lol... that's the funniest cause/effect dissociation I've seen in a while.

PkrBum wrote:

lol... that's the funniest cause/effect dissociation I've seen in a while.

We're adding trillions to the debt every year and Sal honestly believes the Washington politicians are engaged in "austerity" and debt cutting.
Good god if they weren't doing "austerity", I shudder to even think what the fucking deficit would be then. lol

ALL what Sal calls "austerity" is pure rhetoric and nothing else. Neither the republican politicians nor the democrat politicians are actually doing anything to bring this borrowing and spending binge under control. They're afraid to because the public wants them to borrow and spend every dollar and they know it.

Where was Sal when Obama was bitching about the deficits and debt? lol

_________________________

As a senator and presidential candidate, Barack Obama said that he detested budget deficits. In 2006, when the aggregate national debt was almost $8 trillion less than it is today, he blasted George W. Bush’s chronic borrowing and refused to vote for upping the debt ceiling: “Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here.’”

In 2008, Obama further blasted Bush’s continued Keynesian borrowing: “The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children . . . so that we now have over $9 trillion of debt that we are going to have to pay back — $30,000 for every man, woman, and child. That’s irresponsible. It’s unpatriotic.”

Strong words. But so worried was Obama about the debt that just two weeks after he took office, he promised still more: “And that’s why today I’m pledging to cut the deficit we inherited by half by the end of my first term in office. I refuse to leave our children with a debt that they cannot repay.”

In his first term, Obama has added more than $5 trillion to the national debt, borrowing more in four years than the “irresponsible” and “unpatriotic” Bush did in eight. In fact, Obama is on schedule to add more total debt by the end of his two terms than all prior presidents combined. What happened to worries about leaving our children with a “debt they cannot repay”? And where did all that borrowed money go, given that the war in Iraq has been over for more than a year, and we are winding down in Afghanistan?

The recession that ended in 2009 cut revenues, and the population continues to get older and draw more on federal entitlements. But all that said, we have spent record trillions of dollars during the last four years increasing the size of government. A vast 2009 stimulus plan; new Obamacare; new federal employees; vast new expansions in food stamps, disability, and unemployment insurance; and spiraling Medicare, Medicaid, and Social Security payments all increased government spending in each year of the Obama presidency to a higher percentage of the gross domestic product than at any time since 1946.

Obama, for all his overblown rhetoric in 2006, was once right about the deficits. But the antidote for the profligacy of the Bush administration was not to increase the borrowing even more.

What, then, explains the vast gulf between the prior Obama rhetoric and his current record on deficits?

One of two things occurred.

The first possibility is that Obama and his advisers really believed that record deficit spending, near-zero interest rates, and expansions in federal entitlements would jump-start the economy into prosperity. In fact, the opposite occurred. Economic growth continued to hover around or below 2 percent of GDP. Unemployment has never dipped below 7.8 percent during Obama’s entire presidency. The massive borrowing made things worse, not better.

A second explanation for Obama’s “irresponsible” and “unpatriotic” behavior is that, at some point, he began to see political advantages to massive borrowing when combined with near-zero interest rates. The growth of entitlements is popular with many voters, especially given that 47 percent pay no federal income taxes. Politically, it proved wiser to provide free birth-control pills than to be demagogued as wanting to throw granny over a cliff. Who wants to run on giving fewer things to voters and making everyone pay more for what they receive?

Perhaps the Reagan-era notion of lower taxation could be ended only through a sense of impending calamity. As former White House chief of staff Rahm Emanuel once put it, “You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”

Reagan once advocated a “starve the beast” philosophy — lower taxes resulted in less money for out-of-control government. Obama flipped that sequence to a “gorge the beast” paradigm of an out-of-control government demanding far more in taxes.

Higher taxes, weighted heavily toward the affluent, spread the wealth and correct the inequities of market-based compensation. They punish the culpable 1 percent. And they remind some that they did not build their businesses on their own. Deficits force income redistribution through changes in the tax code that in any other political climate would have proven impossible.

But beware of what you wish for. Obama has already gotten his dream of a vastly increased government, federalized health care, near-zero interest rates, and record debt to force higher taxes. The problem now is that there are not enough millionaires and billionaires to make up for the shortfall. And if interest rates rise just a bit, the debt will bury us all — fat cats and thin cats alike.



http://www.nationalreview.com/articles/337299/when-big-deficits-became-good-victor-davis-hanson

https://mises.org/daily/3788

It is a cliché that if we do not study the past we are condemned to repeat it. Almost equally certain, however, is that if there are lessons to be learned from an historical episode, the political class will draw all the wrong ones — and often deliberately so.

Far from viewing the past as a potential source of wisdom and insight, political regimes have a habit of employing history as an ideological weapon, to be distorted and manipulated in the service of present-day ambitions. That's what Winston Churchill meant when he described the history of the Soviet Union as "unpredictable."

For this reason, we should not be surprised that our political leaders have made such transparently ideological use of the past in the wake of the financial crisis that hit the United States in late 2007. According to the endlessly repeated conventional wisdom, the Great Depression of the 1930s was the result of capitalism run riot, and only the wise interventions of progressive politicians restored prosperity.

Many of those who concede that the New Deal programs alone did not succeed in lifting the country out of depression nevertheless go on to suggest that the massive government spending during World War II is what did it.[1] (Even some nominal free marketeers make the latter claim, which hands the entire theoretical argument to supporters of fiscal stimulus.)

The connection between this version of history and the events of today is obvious enough: once again, it is claimed, wildcat capitalism has created a terrific mess, and once again, only a combination of fiscal and monetary stimulus can save us.

In order to make sure that this version of events sticks, little, if any, public mention is ever made of the depression of 1920–1921. And no wonder — that historical experience deflates the ambitions of those who promise us political solutions to the real imbalances at the heart of economic busts.

The conventional wisdom holds that in the absence of government countercyclical policy, whether fiscal or monetary (or both), we cannot expect economic recovery — at least, not without an intolerably long delay. Yet the very opposite policies were followed during the depression of 1920–1921, and recovery was in fact not long in coming.

The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. No wonder, then, that Secretary of Commerce Herbert Hoover — falsely characterized as a supporter of laissez-faire economics — urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored.

Instead of "fiscal stimulus," Harding cut the government's budget nearly in half between 1920 and 1922. The rest of Harding's approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third.

The Federal Reserve's activity, moreover, was hardly noticeable. As one economic historian puts it, "Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction."[2] By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923.