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This is a very good explanation for the debt cycles and the role of banks, gov't, central bank et al. There is one point it doesn't explain, though. It appears
by avz 12y ago
This is a very good explanation for the debt cycles and the role of banks, gov't, central bank et al.
There is one point it doesn't explain, though. It appears that the severity of the debt cycles can be reduced and social stability improved if the economy weren't fueled by credit to such a degree ($3 trillion in money, $50 trillion in credit, wow). So why have so much lending? The video does briefly answer that question with the need to finance economic investments (i.e. things that can improve future income, e.g. a tractor).
That is only a partial answer. The narrower version of the question remains: why do we need so much lending for consumption? Is there any benefit at all in financing consumption with debt? It does increase present spending and economic activity, but only at the expense of reducing future spending and hurting future economic activity.
- alecco 12y ago> why do we need so much lending for consumption? Is there any benefit at all in financing consumption with debt? The benefit is for corporations. And allegedly that trickles down to people/employees. But that's obviously not the case for this current recovery in US. It's a sham.
- refurb 12y agoThe benefit is for corporations. I don't think that's true. Low interest rates benefit everyone as the cost of lending decreases.
- jes 12y agoDo low interest rates benefit savers? For example, senior citizens trying to live off the interest earned from their savings?
- refurb 12y agoIn the short-term it certainly benefits consumers who are using debt to finance their consumption (e.g. houses, cars). In the long run (at least for the housing market) the benefit goes away as housing prices adjust to reflect lower borrowing costs.
- pdecker 12y agoI don't think we necessarily "need" lending for consumption, we like it. We like being able to buy a house when we only have 10% to put down...same thing goes for a car...or a tv...or our clothes, fancy dinners, etc. We want all these things, but most of us can't afford to pay for them in cash. So we leverage up. We don't need credit. We like it.