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The whole tone of the article is very dismissive. It's important to remember no real structural reforms were done after the 2008 crisis, and the underlying prob

The whole tone of the article is very dismissive. It's important to remember no real structural reforms were done after the 2008 crisis, and the underlying problem (the principal-agent problem in public financial institutions and their dealings in risk) remains. And now with even more leverage and greater exposure to even more complex derivatives and financial instruments. There's a reason people are behaving like this. It's also either misinformed, or misleading. A statement like "Shunning debt and spending less can be good for one family's finances. When hundreds of millions do it together, it can starve the global economy." is false. Engaging in deficit spending in ones family would be a great idea if you had an unlimited line of infinite forgiveable-borrowing at 0% from a reserve bank. Similarly saving in the global economy could create large amounts of spare capital that would drive investment in real productive goods and services with healthy returns, if your savings investments weren't being front-run by a central bank with the legal right to print currency. The investment/reward money pricing mechanism (interest rates) are beyond broken, they are corrupted. People saying this were once branded insane, and then libor was revealed. It goes on. This being said, the underlying movement by people leaves me with hope. It's good to see a lot of people paying down their debt, saving their money, choosing to take the financial medicine now, rather than later when the flavour will be even more bitter and possibly deadly.

mseebach 13y ago
The underlying assumption is that the high consumption pre-crisis years is the natural state of the economy and the current situation is the outlier. I can't pretend to know which is true, but I really doubt that boom years were natural, however convenient that narrative it.
- toyg 13y ago
  The truth is in-between: everything about economic states is cyclical.
  - johnchristopher 13y ago
    But that doesn't explain anything. Are those states inevitable so we shouldn't try to anticipate or prevent them from happening or do we make them happen on purposes (read: does a minority manipulate the cycles to its benefits) ?
    - mseebach 13y ago
      They are inevitable, which means everybody should expect tham and plan for them. Basing risk calculations on the assumption that the price of an asset can never go down is a bad idea. Borrowing to cover non-essential operating expenses is a bad idea for both countries and individuals. If anyone could accurately and consistently predict these movements, they could and would be acted against for great profit. That is a simple market indicator that it is not possible. No, boom and bust cycles are not made on purpose. In related news, the Queen is not a lizard.
  - waps 13y ago
    Really ? From the article : In the U.S., debt per adult soared 54 percent in the five years before the crisis. Then it plunged, down 12 percent in 4 1/2 years, although most of that resulted from people defaulting on loans. In the U.K., debt per adult fell a modest 2 percent, but it had jumped 59 percent before the crisis. - SHUNNING DEBT: In the five years before the crisis, household debt in the 10 countries jumped 34 percent, according to Credit Suisse. Then the financial crisis hit, and people slammed the brakes on borrowing. Debt per adult in the 10 countries fell 1 percent in the 4 1/2 years after 2007. Economists say debt hasn't fallen in sync like that since the end of World War II. The article calls this "plunged" "shunning", but it looks a lot more like a tiny hiccup to me.
- mabhatter 13y ago
  Or maybe we're all STILL PAYING OFF our 2008 debts... You know 35% effective APR and our houses all having negative equity 5 years latter will do that. The people writing this stuff live in a fantasy land where the rich took a 25% fall one year,but jumped right back on 10% gains the very next year... so why isn't EVERYBODY making plenty of money? They have absolutely no clue that WE took a 25% hit..but regular folk are lucky to have an aggressive 401k hit 7% in a year... Not to mention that the rich just RAISED THE PRICE of everything to get their money back faster.
mikepurvis 13y ago
For more along these lines, see Sacred Economics: http://sacred-economics.com/ http://sacred-economics.com/ The entirety of the book's text is available on the website.
voodoomagicman 13y ago
What you are missing is that my spending is your income, and your spending is mine. As a thought experiment, if everyone were to stop spending entirely and pay down debt at the same time, no one would have any income. In a more realistic situation - when a big chunk of the GDP is used to pay down debt, the resulting decrease in spending causes the economy to run below capacity and unemployment to be high. This is why low interest or stimulus is helpful - it encourages the economy to produce at its full capacity even though spending by individuals is reduced. This is necessary UNTIL private debt has been payed down and the economy is able to run at full capacity on its own.
- _nb 13y ago
  Paying off debt is a transfer, so while you're now spending less, your creditor is now able to either spend or make new loans.

mseebach 13y ago

The underlying assumption is that the high consumption pre-crisis years is the natural state of the economy and the current situation is the outlier. I can't pretend to know which is true, but I really doubt that boom years were natural, however convenient that narrative it.

toyg 13y ago
The truth is in-between: everything about economic states is cyclical.
- johnchristopher 13y ago
  But that doesn't explain anything. Are those states inevitable so we shouldn't try to anticipate or prevent them from happening or do we make them happen on purposes (read: does a minority manipulate the cycles to its benefits) ?
  - mseebach 13y ago
    They are inevitable, which means everybody should expect tham and plan for them. Basing risk calculations on the assumption that the price of an asset can never go down is a bad idea. Borrowing to cover non-essential operating expenses is a bad idea for both countries and individuals. If anyone could accurately and consistently predict these movements, they could and would be acted against for great profit. That is a simple market indicator that it is not possible. No, boom and bust cycles are not made on purpose. In related news, the Queen is not a lizard.
- waps 13y ago
  Really ? From the article : In the U.S., debt per adult soared 54 percent in the five years before the crisis. Then it plunged, down 12 percent in 4 1/2 years, although most of that resulted from people defaulting on loans. In the U.K., debt per adult fell a modest 2 percent, but it had jumped 59 percent before the crisis. - SHUNNING DEBT: In the five years before the crisis, household debt in the 10 countries jumped 34 percent, according to Credit Suisse. Then the financial crisis hit, and people slammed the brakes on borrowing. Debt per adult in the 10 countries fell 1 percent in the 4 1/2 years after 2007. Economists say debt hasn't fallen in sync like that since the end of World War II. The article calls this "plunged" "shunning", but it looks a lot more like a tiny hiccup to me.
mabhatter 13y ago
Or maybe we're all STILL PAYING OFF our 2008 debts... You know 35% effective APR and our houses all having negative equity 5 years latter will do that. The people writing this stuff live in a fantasy land where the rich took a 25% fall one year,but jumped right back on 10% gains the very next year... so why isn't EVERYBODY making plenty of money? They have absolutely no clue that WE took a 25% hit..but regular folk are lucky to have an aggressive 401k hit 7% in a year... Not to mention that the rich just RAISED THE PRICE of everything to get their money back faster.

mikepurvis 13y ago

For more along these lines, see Sacred Economics: http://sacred-economics.com/ http://sacred-economics.com/ The entirety of the book's text is available on the website.

voodoomagicman 13y ago

What you are missing is that my spending is your income, and your spending is mine. As a thought experiment, if everyone were to stop spending entirely and pay down debt at the same time, no one would have any income. In a more realistic situation - when a big chunk of the GDP is used to pay down debt, the resulting decrease in spending causes the economy to run below capacity and unemployment to be high. This is why low interest or stimulus is helpful - it encourages the economy to produce at its full capacity even though spending by individuals is reduced. This is necessary UNTIL private debt has been payed down and the economy is able to run at full capacity on its own.

_nb 13y ago
Paying off debt is a transfer, so while you're now spending less, your creditor is now able to either spend or make new loans.