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Certainly borrowing some 650 billion Dollars and spending it will generate a lot of economic activity, so it did indeed help the economy from that perspective.  I’ll point out once again that the ability to borrow is not limitless, a concept that the Federal Reserve and world’s Central Banks can’t seem to grasp, despite recent harsh lessons on the subject.  There is another equally important component to the borrow and spend equation.  Borrowed money can be spent on non-productive assets meaning that they do not return economic value, this was the problem with the housing boom and bust as far too many homes fell into the non-productive category.  Conversely borrowed money can be spent on productive assets such as business capital spending or something that generates a return on assets.  As with all borrowed funds the spending usually ends up as a bit of both.  Debt that is productive can usually be justified and increased so long as the return on capital exceeds the cost of capital.  Debt that is non-productive leads to bankruptcy if excessive or it can’t be serviced due to job loss, or other unforeseen circumstances such as illness.  Even if this outcome is avoided it frequently lowers the standard of living for the indebted person, in this case students who can’t find a decent paying job to fit with their degree or who drop out prior to getting a degree.  This has been fingered as much of the reason household formation and home purchases have lagged in the post bust period since 2009 and is the foundation of the criticism of this report.  It blatantly presents a factually correct argument that is based on a half-truth and promoted through the selective presentation of information.  Then again false logic, half-truths and selective reporting are the staples of the mainstream media and have been for quite some time.

This is Caleb Lawrence Registered Investment Advisor Scotts Valley Drive and Willis Road in the Scotts Valley Plaza, Suite 202 or call me toll free at 888-RICH PIG / 888-742-4744.

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