TheRealMafoo said:
richardhutnik said:
HappySqurriel said:
richardhutnik said:
mrstickball said:
numonex said:
Spend more money through Economic Stimulus or implement harsh Economic Austerity measures? Both measures will result in much bigger debts. What is the lesser of the two evils?
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How will austerity lead to bigger debts? Please explain.
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Let's assume that we aren't looking at unsustainable malconsumption in the economy and spending generated by an economic stimulus goes towards buying news houses or basic needs and wants. Doing this generates growth, and causes an increase in tax revenues. In the case where people don't spend money, then the economy can contract and there is insufficient tax revenues generated. Thus, you run up larger debts.
What is a problem here is presuming that larger debts are an unavoidable norm. In this, you are setting a spiral into doom to happen. Eventually the debts do have to be paid, irregardless if you keep telling yourself that "the debt is only X% of GDP and is sustainable".
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One of the core elements that led to this current economic crisis was the market was manipulated to create artificial demand in the housing market to create the illusion of economic growth; how is what you’re suggesting any different from the situation we’re still recovering from?
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That is an element. Also included in this to is a consumer driven economy with people maxing out their credit cards.
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That's not as much of a problem. Credit card debt is a drop in the bucket compared to lost imaginary value in the housing industry.
There are millions of people in this country with houses that they owe $20,000 more then the house is worth. Some as much as $200,000-$300,000 (hell, some in the millions), and this all happened quickly, to people banks weren't expecting it to happen to.
Plus most debt on peoples credit cards by the time they file bankruptcy and don't pay it back, is lost revenue, not a direct loss. People don't understand the dangers of interest. So buy the time they default, they have paid the principal off long ago, and there maxed credit card is nothing more then interest.
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I am talking about a level of consumer spending used to sustain the economy. If the amount of activity based on consumer debt isn't going to be there, then the economy isn't going to function at levels people are used to. Hiring won't happen either. Throw in also the home equity loans people were doing. The vehicles to drive economic activity won't be there. People say the government should replace this spending. How exactly does government IOUs make things sustainable, unless the borrowing funds research (and they get lucky) or infrastructure developments that enable economic activity that hadn't happened prior?
