Thursday, October 16, 2008

Cracks in Debt Society

Here's a tidbit from Adam Levitin, writing for the Credit Slips blog:

The US economy is fueled by consumer spending. In order for the economy to grow, consumer spending has to grow, and consumer spending is fueled by debt. Consumers largely spend not out of current assets or current income, but out of future income. Consumers are able to do this because of their assumptions about their current assets — especially their retirement savings. Unfortunately, consumer behavior for the past seven years has been shaped by the unrealistic expectations formed in a bubble. Consumers have saved less because they thought they had a bigger investment cushion. This sets us up for a retrenchment in consumer spending, which is exactly what Treasury does not want to see. In order to keep consumer behavior the same, Treasury needs to reinflate that bubble. But doing so just sets us up for another crash.

My thoughts: Levitin's words are spot-on. That is precisely where we are.

We have a massive (bad) debt problem, and our government's collective answer seems to be "Add more debt!"

Is it really any surprise?

— Posted by Michael @ 9:44 AM


I agree with the post. Although I hate to say it, his is one recession where increased government spending (on energy R&D and infrastructure) should be used to stimulate the economy, not more consumer spending.


Stimulate the economy with more consumer spending? Hmmm... great advice from a government that is mega-bazillions in debt. Ugh.

Anonymous ExcelGeek
, at 6:35 PM, October 16, 2008  

Unfortunately, the federal government can't be run like a household. I think the questions from moderators in the presidential debates about what each candidate would cut from their agenda given the current economy were really disingenuous and I was happy to see both for the most part decline to give an answer. It doesn't sound good, but government spending is what it will take to help us out of this dismal state and stimulate the economy, just as mr. toughmoneylove noted above.


Unfortunately for the previous posters, government spending can in no way stimulate an economy. Basic economics tells us that. A refresher as to the economics of the business cycle (never more relevant) is here:


Anonymous Anonymous
, at 3:26 AM, October 18, 2008  

Bravo Anonymous 10/18/08! Great link/article! Yeah... what he said! ;-)

Anonymous ExcelGeek
, at 6:18 AM, October 23, 2008  
** Comments Closed on this Post **

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