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Stay away from the credit/debt system

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moralist

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The US’s ability to issue new securities is much greater because it has it’s own central bank that it controls. This bank can create demand for US bonds at any time. This is exactly what happened with QE, and bond yields went DOWN. This surprised many people (like dumb rating agencies who cut the AAA rating), while it was the market who actually decided the credit risk was less.

You know, Kate... you just keep providing reason upon reason why not to gamble in the debt market casinos.

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I don't know if her reasons are valid, certainly seems like an apologist for Keynes(or supporter). Probably taking a 200 level econ course currently, just an impression.

I believe your assessment is not far off the mark. Everyone is an informative example to others... whether it's a good one or a bad one. And Kate offers a wonderfully entertaining counterpoint. The more she acts as a cheerleader for the debt system, unearned entitlements, and sings praises to the monetary policies of bloated deadbeat debtor European liberal socialist bureaucracies, the more really good sound reasons she continues to provide for people to run the other way from them.

When people talk of their admiration for the grand sweeping scale of macro economic governmental monetary policies...

...they're actually revealing to everyone how they handle their own personal finances. ;)

Edited by moralist
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Moralist

Do you not see a difference between credit/debt? In your posts it seems you disparage what I would call legitimate credit with debt and that both concepts are equally immoral, am I reading you right?

By legitimate credit , I mean things like funding Ted Turner to build CNN, as opposed to consumer credit card debt.

Edited by tadmjones
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Moralist

Do you not see a difference between credit/debt?

No, as they both represent a lack of capital... but have come to be regarded as capital.

In your posts it seems you disparage what I would call legitimate credit with debt and that both concepts are equally immoral, am I reading you right?

Not immoral as in overt evil... just unwise.

Operating 100% solvent is only my own personal preference. Everyone else is perfectly free to do whatever they want. Just stop for a moment to consider what happened in 2008 when debt became an unearned entitlement. For the years leading up to that time, debt was crack cocaine to the economy and everyone was freaking high on it. Just a few more years now and that lesson will be lost again as people return to gamble in the zero sum debt casino where one person's gain can only come from another's loss.

By legitimate credit , I mean things like funding Ted Turner to build CNN, as opposed to consumer credit card debt.

I see the difference only as a matter of scale. Think of Ted Turner as a horse... you are free to bet on that horse, and it might win and it might lose. That's a risk you fully and voluntarily choose to assume. I consider myself a horse, too albeit a very tiny one... and so I choose to only bet on myself because I'm also the trainer, the manager, and I own the track.

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Modern society as we know it today... drowning in trillions upon trillions of dollars of debt... personal, corporate, and government.
This is non-responsive. Are you saying that large-scale industrialization is a bad thing? or that it would have been possible without the construct of debt?
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This is non-responsive. Are you saying that large-scale industrialization is a bad thing? or that it would have been possible without the construct of debt?

I'm saying that a different society would exist today if its economy was not based upon regarding debt as if it was capital like the present American economy is....

...and no one knows what it would be like.

All I know is what my own personal economy is like from operating on the principle of solvency. And it is a sound principle which has provided iron clad protection for decades from becoming the collatoral damage of many repeated boom and bust economic and political cycles.

Just what did you expect to happen when everyone has indulged in the fantasy that a lack of capital is capital? Do you think that there are no consequences for abandoning reality for a fantasy? Everyone who indulges pays just as they deserve.

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...and no one knows what it would be like.
The world would have been a much poorer place, with far less industrialization.

One can criticize people for taking on too much debt, but this is not the fault of debt. Analogously, one can criticize people for eating too much food, but this is not the fault of food. Done right, food and debt are values.

Properly, debt is capital that has been borrowed. Since most people earn for a certain number of years and are then unable to do so -- in retirement -- it makes sense to save capital that one may draw upon during the last few decades of one's life. It also makes sense to have this capital in a form that it continues to be productive. Debt is the mechanism for this. One lends capital to others and therefore gets back more than the original amount. it is a win win.

Excessive debt (like obesity) has been around for centuries. At some point, governments got into the game, subsidizing debt, thus making the problem worse. However, this does not change the underlying fact that debt -- done right -- is as essential to a modern economy as is fossil fuel.

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SoftwareNerd is helping to make my point between consumer debt, accumulating and consuming goods in the present with a promise to pay in future, is different than using pre-existing wealth(credit) to develope future wealth. When men like Carnagie or Rockefeller used profits from year n to fund activity in year n+1 , they were using credit(albeit their own) to produce more wealth. The fact that they may not have received the capital in the form of credit from a seperate institution, does not alter the fact that the capital invested in their business ventures was at risk and that without that capital being invested there would not have been,could not have been creation of more wealth(capital).

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Economist Hyman Minsky categorized borrowing. In "hedge-borrowing", the productiveness of the capital is enough to cover interest and repayment. Taken further, in "speculative borrowing" the capital can produce enough to cover interest payments, but it has to be constantly refinanced. Finally, one has "ponzi borrowing" where the only way the repayment can be made is if the asset purchased with the capital appreciates.

... consumer debt, accumulating and consuming goods in the present with a promise to pay in future, is different than using pre-existing wealth(credit) to develope future wealth.
Consumer debt is fine for large value purchases, as long as the borrower stays within safe limits. A house is a good example, as long as one puts enough money down and as long as one's income is enough to cover payments easily, it can be worth borrowing rather than renting for a few more years.
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Economist Hyman Minsky categorized borrowing. In "hedge-borrowing", the productiveness of the capital is enough to cover interest and repayment. Taken further, in "speculative borrowing" the capital can produce enough to cover interest payments, but it has to be constantly refinanced. Finally, one has "ponzi borrowing" where the only way the repayment can be made is if the asset purchased with the capital appreciates.

Consumer debt is fine for large value purchases, as long as the borrower stays within safe limits. A house is a good example, as long as one puts enough money down and as long as one's income is enough to cover payments easily, it can be worth borrowing rather than renting for a few more years.

I agree(I have a mortgage,one we can afford), my point was more toward to the op equating credit and debt, and how in a capitalistic division of labor society credit is a beneficial(to the parties directly involved and ultimately if successful to untold unintended beneficiaires) agreement between traders.

Edited by tadmjones
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The world would have been a much poorer place, with far less industrialization....

...However, this does not change the underlying fact that debt -- done right -- is as essential to a modern economy as is fossil fuel.

Then there is nothing to complain about for you already have exactly what you want... an economy that runs on debt.

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Economist Hyman Minsky categorized borrowing. In "hedge-borrowing", the productiveness of the capital is enough to cover interest and repayment.

That also plays into the idea that debt is capital. Capital does not actually produce anything, only people who work can produce wealth.

You see, there is a basic flaw in a debt driven economy. A long time ago, there used to be a social stigma associated with living in debt, whereas now it has become a source of pride. People have become proud of their ability to borrow money because it gives them a false sense of power. They are proud of their high credit card limits and equity lines of credit as if they were acheivements, when in truth they are only expressions of what they lack... capital.

This is what makes recessions and depressions so beneficial. They are the inevitable inexorable return to the reality of capital as being capital... from the fantasy of regarding debt as if it was capital.

Human nature does not change. Only individuals can change by acting contrary to their own human nature.

My minority opinion about debt has absolutely no power to set public economic policy, so you are all safe in the certainty that the debt driven economy will continue with all of its just and deserved consequences. If you didn't learn anything from the debt collapse of 2008, you'll always have another opportunity when the next one comes.

I'm content to only have the power to set my own private economic policy, because that is all which is required to protect me from the consequences of your debt driven economy.

It's as safe as living in Galt's Gulch. :thumbsup:

Edited by moralist
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I don't know if her reasons are valid, certainly seems like an apologist for Keynes(or supporter). Probably taking a 200 level econ course currently, just an impression.

I believe your assessment is not far off the mark. Everyone is an informative example to others... whether it's a good one or a bad one. And Kate offers a wonderfully entertaining counterpoint. The more she acts as a cheerleader for the debt system, unearned entitlements, and sings praises to the monetary policies of bloated deadbeat debtor European liberal socialist bureaucracies, the more really good sound reasons she continues to provide for people to run the other way from them.

I have taken 200 level macro economics courses years ago. This included studying Keynesian, Neoclassical, and even some Austrian models. That's what's important here; having a model that is empirically testable against reality. If this is your focus (and it should be) it is not hard to see which models have held up well during the past few years. You are allowed your own opinions, but not your own facts.

When people talk of their admiration for the grand sweeping scale of macro economic governmental monetary policies...

...they're actually revealing to everyone how they handle their own personal finances. ;)

No, no, no!! The way to handle personal finances (or business finances) is exactly like you would advocate ie a balanced budget! Applying this to a country during a liquidity trap is disastrous. The difference here arises because a country is not a company - http://www.afi.es/EO/Paul%20Krugman%20A%20country%20is%20not%20a%20company.pdf from Harvard Business Review.

That really is a classic article, and its worth reading so that every time you hear someone comparing an economy to a household/business you know their analysis is likely to be poor.

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Related to the topic of this thread, here is Yaron Brook on "The Morality of Money Lending".

Christians, Muslims and many others have railed against credit and debit for centuries, and while some have emerged into the modern world, others still see lending on interest as immoral.

Edited by softwareNerd
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That really is a classic article, and its worth reading so that every time you hear someone comparing an economy to a household/business you know their analysis is likely to be poor.

Aristotle made that very point in his -Politics-. The word has been out for over 2300 years.

ruveyn1

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Related to the topic of this thread, here is Yaron Brook on "The Morality of Money Lending".

Christians, Muslims and many others have railed against credit and debit for centuries, and while some have emerged into the modern world, others still see lending on interest as immoral.

Lending can only be as moral as people are. Maybe you'll learn the value of solvency when the next 2008 comes... and then again maybe not.

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Believe me, it shows.

Many students never make it out of the perennial adolesence of government subsidized education and into the adult world of private sector Capitalist business.

I'm not going to respond in detail since the crux of your knowledge of economics consists of a series of right-wing conspiracies. Since you are determined to be personal though, I am curious, your profile lists you as a Christian. How does your cognitive dissonance square this with Objectivism?

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Your savings sitting in your bank account aren't actually there you realise? So you are entangled in the "credit/debt system" whether you want to be or not. I guess you could advocate making fractional reserve banking illegal, but this would be an initiation of force against banks, and so would require more cognitive dissonance from you.

Those deadbeat children, elderly people, and disabled people!

What an insult to America. What happened in Greece cannot happen in America for several reasons. One is that the US's debt's are denominated in a currency that it controls ie the US dollar. Whereas Greece's debt's are denominated in a currency it does not control ie the Euro. The economic implications to this are vast and I think you should read about them before making ridiculous comparisons!

The currency in the Weimar Republic was denominated by a currency the government controlled. It did not help. The currency of the Weimar Republic became radically debased by runaway printing presses. The collapse of the currency was one of the things that lead to the political coup that the Nazis inflicted on Germany.

Those who fail to learn the lessons of history are doomed to repeat them.

ruveyn1

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