Why are we going into debt to be able to spend?

Piotr Bania
Aug 28, 2017 · 6 min read

One of the biggest debtors in today’s world is the US. Americans are borrowing money even from the poorest countries. The United States is the biggest importer, but they don’t pay for import with export like many other countries do, they just issuing IOU’s. So the world loans them the money that US need to buy the products, that other countries producing.

And they loaning the money now, at the lowest interest rates in history. If you think of interest as the price of borrowing money, what determines prices? Supply and demand. And which societies should have the lowest interest rates? The ones who have loads of savings, plenty of people who under-consuming and just few who borrowing. Unfortunately, this is opposite to the United States.

Nobody is saving! Most of the people can not afford to save. They can not even afford to spend! They have to borrow.

Why do we have to go into debt in order to be able to spend? But there is much more under the surface. Government guaranteed student loans, all the bank accounts, and all the pensions.

I could sarcastically ask “why that is a liability?” Unfortunately, most of those liabilities will be real, even though government guarantee to outsource all of those debts. People, who seek security will expect the government to help them out. If you add all of the debt and liabilities of the US together, you get the figure way over $100 trillion! On top of that, you have US corporations, which are loaded up with debt. Why is the stock market at all time high? Is it because all of those companies make so much profit year to year? No! It is because they are able to buy back their shares with debts while selling bonds at the lowest interest rates.

WHAT ABOUT AMERICAS HOUSEHOLDS?

They are loaded with debt too. In fact, it looks even worst than before 2008 financial crisis. On top of that, home ownership rate has fallen to nearly 60 years low which means, those, who had ownership in 2008 do not have it anymore today. A lot of home owners are now renters.

What else don’t they have? They don’t have home equity. In 2008 at least some people had an overpriced home, which exceeded the amount of the mortgage taken. Instead of cashing out at that time, people remortgaged and played with their future.

Today that asset is gone, but debt is still there. So why the US has so much debt even though, there are fewer mortgages taken? Because of the credit card debt, student loans and because of their automobile debt. It sums up to over 1 trillion dollars for each of those categories. That has been fuelling the US consumption — it has not been income — it has been DEBT! It is the ability to buy things you cannot afford on credit with cheap money which you don’t have.

Of course, some people will point out the low employment.

If the economy is so great, why people don’t want the same? Why did they not voted for Hillary Clinton? All that great stuff could continue…

So, the unemployment rate is a nonsense.

The way government measure it is probably similar to the way they measure inflation. The number is not designed to be accurate — it is designed to paint a rosy scenario so that people believe, that things are better in the US economy.

So why is the unemployment rate so low? Is it because so many people are working? No! It is because many of them don’t even look for a job; and if you are not looking for a job, you are not counted as being unemployed.

If you are an engineer, who is frying french fries for 20 hours a week and after that, you are looking for a job — you are an unemployed engineer. On top of that, if a person working in two part time jobs, now is counted by the government as two full time jobs. Thanks to Barrack Obama!

So many Americans now working even three jobs, but they do not make as much money as when they had one real job. The US lost a lot of productive jobs, goods producing ones and they have now the low paying, service sector, non-productive jobs. So people indeed are employed, but not productively. When they cashing out their earned paychecks, that money is spent on products that are made in other than US countries.

The government argues that when people are wealthy, they spend more. This is not true — wealthy people produce more. Production is a sign of affluence. Debt and consumption are not. A sign of prosperity is getting out of debt, but Americans just accumulating it. When you paying off your liabilities and accumulating assets, that shows economy progressing.

So why GDP keeps growing under this condition?

It is growing because the actual inflation in US economy is being under-estimated. Government economists are now even claiming that inflation is overstated, that they need to change the measurement again. The last time they did this was back in the 80’s. The government said that the measures were wrong and they had to refigure it because the numbers were too low. Ironically now, politicians are saying that the current way that we calculate the inflation is still not giving enough credit for improvement and quality.

If the United States of America had more accurate, more honest measures of inflation, the result would reveal that the US is pretty much in recession for the entire time of its recovery since 2008. In fact, this is the first recovery that is actually weaker than the recession that the US is trying to recover from. It is the first recovery in history when people are poorer in the end of the process compare to the beginning. Real net worth went down during this recovery and wages fell. Therefore, it does not sound like a recovery at all. The government manufactured it with fake statistics. But the statistics didn’t fool the voters.

That is why Donald Trump was elected. People wanted change. Unfortunately for them, they will not get that chance — they will get more of the same because now the US is headed for the complete collapse of the system. There is not much air that could be put into this bubble. 2008 was just the sign that the end is near. That was only the beginning of the process. But government (as usual) try to calm down the nation with the idea that everything is all right, that there is no inflation.

Well, this is about to change

Piotr Bania

cactus@stupidcactus.com

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Piotr Bania

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Moved from Poland to London. Studied pedagogic and psychology in Wroclaw, PL. Former bodybuilder, contender at UKBFF British Finals. Currently an accountant.

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