Thursday, April 19, 2012

Private Debt 2012 (16): Why do you think that?

Why do you think it is the Federal debt that hinders economic growth? That's just silly. It is private debt that hinders private sector growth.

A new use of credit creates an addition to spending and a boost to the economy. But the equal and opposite effect is the drag on the economy, resulting from the debt that was created by that use of credit.

It isn't magic. We don't get something for nothing. We get something when we borrow, but in exchange we create debt, a drag on the economy.

So if we go for 60 years borrowing more and more, the debt just accumulates. The drag from that debt accumulates, too, slowly but surely becoming an insurmountable obstacle to economic growth.

People say taxes are high, and still the government has deficits, so government spending must be excessive. I disagree. Taxes are high, and the government has deficits, and small government as a rule is better than big government, sure. But there are other economic forces at play and other economic factors to consider.

Taxes must be higher in China than they are here, don't you think? And the government must certainly be a bigger part of their overall economy. But China has been growing like crazy for a long time, and we have not. There are other economic forces at play and other economic factors to consider, other than Federal spending and Federal debt.

China has less private debt.

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