You can't stimulate growth with borrowed money, because the borrowing commits a larger share of your future profits to pay the debt service, and because interest compounds faster than profits, this is a losing proposition. It has one sure outcome: default.
Picture this equation: a borrower and a bank. The borrower intends to borrow all he needs to live on. The bank intends to lend all it can as long as the interest payments come in. Who do you think has the competitive advantage in this relationship? The bank, of course. The borrower only exists as long as the bank permits him to exist.
Proposing a massive increase in borrowing during a recession created by excessive leveraged debt is like tearing open a case of bourbon when the bottle of bourbon just gave you a huge hangover. It's the mindset of an addict. The only reason the Federal Reserve cooperates with this lunacy is because the lenders who feed us this debt own title to a larger and larger percentage of collateral with each new round of lending.
They are trading you paper they create out of thin air with a computer for title to every real asset under your feet. Good luck with that.
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Yes, we own nothing. Eventually the situation will get completely out of hand and the lenders will no longer lend because they will be sure they can never be repaid. This is what has happened to "developing countries" who have borrowed heavily from the World Bank. There comes a point when you would have to be a fool to believe that the loans could ever be repaid. Bookies do this too--they can't break everyone's legs, so some debt must be forgiven in order to keep the ball rolling. The money is make believe anyway! It is not really based on anything of real value. It's from the land of make believe.
ReplyDeleteThe money comes from Magic Money Mountain. The rivers that run down the sides of Magic Money Mountain carry cold Dr. Pepper and the fish jump right in your boat.
ReplyDelete