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Don't buy things you can not afford. This is a fine rule to aim for (prudent for individuals and all that), but it makes me wonder. If everyone in the world (a

Don't buy things you can not afford. This is a fine rule to aim for (prudent for individuals and all that), but it makes me wonder. If everyone in the world (and the nations of the world) actually began to live by this advice, wouldn't that trigger an immense depression? (When responding, please take me at my word: I'm not consciously posting flame-bait; I'm just truly ignorant when it comes to economics.)

mediaman 16y ago
An increase in the savings rate has significantly negative effects on GDP growth in the short-term. So, if the US suddenly lived within its means, it would cause/worsen a short-term depression. In the long-run, a bigger capital base can create more technology and/or capital investment, which improves productivity, which improves standards of living.
- CWuestefeld 16y ago
  I agree with your conclusion, but part of your logic is faulty. You seem to be assuming that all savings takes the form of holding debt from others, e.g., bonds. But that's only one possibility. You can also save by owning equity in others, e.g., stocks. However, I don't want somebody else to own equity in my house, rather me having a normal mortgage. At the very least, such a change would cause all kinds of liquidity problems, and would certainly cause the significant negative effects you predict.
BigZaphod 16y ago
I'm no expert, but I've always understood that to be basically true - that our entire system depends on debt because debt is how money is created and our system depends on that process in order to avoid falling over itself. It's part of the magic of fiat money, I believe. If our money was based on a physical good (say, gold), then I don't think the same rules apply. Edit: I'm doing my part in aiding the collapse of civilization by not carrying any debt. (Except for my house - but I wish I didn't even have that one hanging over my head.)
prat 16y ago
If you talk to people who come from Asian countries, you'll find a completely different set of values as far as spending is concerned. Yes - I did NOT use to buy things I couldn't afford. I lived by saving and waiting to buy. This is how even the US was officially before 1940-50, but practically even as early as 1980s. Where I come from (India), a decade ago, you could find people who had waited all there lives to use there savings to buying a new home. There was no concept of 30year mortgages - forget about credit cards. When credit cards were first introduced, they were used for the convenience of not having to carry cash not really for credit (at least from the customers point of view). But things are changing now - its becoming the same as in the US.

mediaman 16y ago

An increase in the savings rate has significantly negative effects on GDP growth in the short-term. So, if the US suddenly lived within its means, it would cause/worsen a short-term depression. In the long-run, a bigger capital base can create more technology and/or capital investment, which improves productivity, which improves standards of living.

CWuestefeld 16y ago
I agree with your conclusion, but part of your logic is faulty. You seem to be assuming that all savings takes the form of holding debt from others, e.g., bonds. But that's only one possibility. You can also save by owning equity in others, e.g., stocks. However, I don't want somebody else to own equity in my house, rather me having a normal mortgage. At the very least, such a change would cause all kinds of liquidity problems, and would certainly cause the significant negative effects you predict.

BigZaphod 16y ago

I'm no expert, but I've always understood that to be basically true - that our entire system depends on debt because debt is how money is created and our system depends on that process in order to avoid falling over itself. It's part of the magic of fiat money, I believe. If our money was based on a physical good (say, gold), then I don't think the same rules apply. Edit: I'm doing my part in aiding the collapse of civilization by not carrying any debt. (Except for my house - but I wish I didn't even have that one hanging over my head.)

prat 16y ago

If you talk to people who come from Asian countries, you'll find a completely different set of values as far as spending is concerned. Yes - I did NOT use to buy things I couldn't afford. I lived by saving and waiting to buy. This is how even the US was officially before 1940-50, but practically even as early as 1980s. Where I come from (India), a decade ago, you could find people who had waited all there lives to use there savings to buying a new home. There was no concept of 30year mortgages - forget about credit cards. When credit cards were first introduced, they were used for the convenience of not having to carry cash not really for credit (at least from the customers point of view). But things are changing now - its becoming the same as in the US.