My post yesterday about why we had a financial crisis and what to do about it suggested this:
Second… Dig no further.
Adding debt to an already bubble popping amount of debt service can’t help. But we’ve done just that for the last year. Politicians spent and prayed. Economists in their service, prayed. Stop digging!
Some may ask why not more debt? It worked to get us out of the ‘92 recession, and the 80 recession? And we have lived prosperously for a century using that method – why switch?
Short answer… because a debt Ponzi scheme is still a Ponzi scheme and it must, and will, come crashing down.
Long answer… I’m not advocating getting rid of debt. I advocate getting rid of crazy debt, which I define as debt used to finance unproductive, speculative ventures. For example, if I borrow money to finance expanding a factory, that is productive. If I borrow money to buy a piece of property I believe will rise in value, that is not productive. I’m not adding value, I’m just possessing.
Debt fueled productivity raises net GNP (GNP minus debt). If you view net GNP, ultimately, as what we use to pay down debt, then for the system to not crash you have to rise GNP faster than debt service. And we didn’t. And it came crashing down.
So debt isn’t the problem – crazy, speculative, debt is.
Get rid of it and we have a fine system that will provide wealth long into the future.