fbpx Accept-Encoding: deflate, gzip

One of the points I have made repeatedly is that the debt based growth model popular with developed countries and the USA. Is that they only work so long as you can steadily reduce the debt service costs through either lower interest rates and or restructuring the payments over a longer period of time. An easy way to think about this is to use the 15 and 30 year mortgage as an example. Everyone knows that lower interest rates provide opportunities to refinance the mortgage and get a lower payment. Extending the loan period from 15 to 30 years will also lower the monthly payment. This allows the homeowner the opportunity to take out equity for a new kitchen, car or some other personal expense if so desired while keeping the same monthly payment. Governments can do a similar thing except they run deficits to enhance government spending, buy votes, make their constituents happy or other politically motivated aims. Either way debt goes up over time. When interest rates can no longer be lowered and or loan periods extended the game is up as there is no way to reduce the monthly payment and borrow more money at the same monthly payment level. Essentially the period of debt enhanced consumption both public and private comes to its mathematically pre-ordained end, because income either taxes or the earned variety are required to service debt each month. The quarterly Federal Reserve Flow of Funds report and other metrics clearly show the accumulation of debt over time, look at the interest rate curve and cross reference with the data on employment including hours worked, pay per hour etc. and the reasons why we struggle to maintain anemic economic growth in the post crisis period since 2007 of 2% or so per year becomes clear. Why it is the government and the lamestream media can’t connect the dots and continue to push pie in the sky mathematically unworkable stories of imminent escape velocity and economic recovery when they know, or should know that it isn’t true is beyond me.

error

Enjoy this blog? Please spread the word :)