Thursday, May 12, 2011

60 Times (2½)

In the micro economy, you go to your bank for a loan. The banker looks at your debt and your income, and bases his decision-to-lend largely upon these these numbers.

Debt and income. And in a macro economy "built on micro-economic foundations", economists compare total debt to total income. This is a mistake. As long as the economy keeps growing, there is always more income to support more debt. But that is not the same thing as having more money in the economy.

You need money to pay off debt. You can pay off debt with income, but if that income exists because somebody added to total debt, then paying off debt with income does not reduce total debt.

No comments: