Tuesday, January 22, 2013
In total, we have some 50 trillion dollars of debt in this country. That's a lot.
I don't know what the average interest rate is on all that debt, but say it's 2 percent. That's pretty low.
Two percent of fifty trillion is a trillion dollars. That's a lowball estimate of how much we pay in interest each year on all our debt. A trillion bucks.
Forget about the debt. Just look at the interest. We make the payments out of our income. Income is circulating money. If you save a bit, the bit you save stops circulating. As you spend the rest, it remains in circulation.
The money we use to pay that trillion dollars of interest comes out of the money in circulation.
How much money is there, in circulation?
Today there is about 2.4 trillion dollars circulating. So over the course of a year, we take almost half of that out of circulation just to pay interest.
Before the crisis there was about 1.4 trillion dollars circulating. It took almost all of that money just to pay interest on the debt we owe.
Maybe that's why there was a crisis.
Oh, I know. I've simplified things.
You want to tell me about all the poor old folks who live on interest, that can't afford to eat now because interest rates are low. And you might remind me that for people living on their interest income, the money most certainly does come out of savings and does go back into circulation.
Sure. But poor folks don't have a lot of money, in savings or anywhere. So I don't expect that the part of interest payments that goes back into circulation is a very large part of the total. I expect it is a very small part.
Rich people, on the other hand, might have a lot of money. But their Marginal Propensity to Consume is less, and they can afford to save. So for the people that have money, most of what they receive in interest is not coming back into circulation.
Anybody got the stats?
Posted by The Arthurian at 4:00 AM