When I was very young and was learning about money, I would scratch my head when I passed by roadside signs: “Bad Credit, No Credit — No Problem”. Â So let me think this through …. If I had overspent, had racked up too many loans, and perhaps even started to default on some of them .. but I really really really wanted a new purchase, say a car … my solution was MORE CREDIT!
Wow! Â If you spend beyond your means, just borrow more!
Reality sunk in as I matured. Â The ultimate destination for unbridled spending in our personal lives is bankruptcy, not greater prosperity. Â Unless, of course, I had a magic spring of cash in my basement that would simply print more money when I needed it. Â Ahh! Â Fantasy Land … Â I have since learned that I just have to generate more revenue, or cut my spending to generate and accumulate wealth. Â What an old fashioned concept!
Along comes our Federal Government, with the ability to create fiat money (print money). Â Â And what are they doing in response to the “debt crisis”? Â You got it! Â Spend more money!
An excellent article, The Debt Crisis Cannot Be Solved with More Debt by David Saied documents how rapid our expansion of debt has been.
Consumer credit, which in 1950 was only 6% of total gross domestic product (GDP), has by 2009 tripled to 18% of GDP. Bank credit, which in 1947 was 45% of GDP, has by 2009 risen to 67% of GDP. Household debt, which in 1957 was only about 45% of national income, peaked at over 120% of national income by 2007. According to the congressional budget office (CBO), federal debt, which was at an already-high level of 41% of GDP in 2008, is expected to balloon to 200% of GDP by 2038. The CBO expects federal debt to grow to 60% of GDP by 2010.
As simply as this is not sustainable in our households, it is not sustainable at the national level.
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