News What are the potential impacts of public confidence on the economy's recovery?

[OmCheeto]

Post #522:

blah blah blah

Since the depths of recession in December 2008, the average household net worth has climbed by $51,309 to a current level of $477,315

blah blah blah

Household net work HAS never been anywhere near that high...I don't thion it has EVER exceed even $100K...Could not find a current figure but the government tracks that...here is one chart that seems in the ballpark:

http://en.wikipedia.org/wiki/File:Graphic.png
\Note the peak at about $65K.

Um...

Naty. I don't mean to be rude, but you really need to pay closer attention to the scales on graphs:

[PLAIN]http://upload.wikimedia.org/wikipedia/en/a/a3/Graphic.png
Naty's wiki Graphic.png graph

$55,000 x a BILLION is 55 trillion dollars.

55 trillion dollars divided by 115 million households is around 400+ thousand dollars per household.

I actually did the math last week wondering how incredibly rich this nation was. I was like; "Where's my $477,315?!"


115000000 = households
477315 = wealth number from original article
$54,891,225,000,000.00 = wealth of a nation

But of course, wealth is all relative to what people will pay for something. I was arguing the other day with a fellow investor about the value of gold, as I find the value of gold to be quite humorous.

He said; "The value of gold is what people are willing to pay for it."

I didn't argue the point, because he was, as everyone knows, correct.

 

[brainstorm]

I'm not sure this comparison is valid. If you walk into a bank and ask for a loan, yes they will inquire about your ability to pay. However, they are more interested in the asset you are using to secure the loan - my bank likes CD's - they own enough real estate, cars, boats, commercial buildings, and restaurant packages.

In your example, the bank might have loaned money to someone to buy the slave being offered - based upon the slave (assets) ability to produce income?

LOL. I actually went into banks to talk to loan officers following the credit meltdown. I asked them how much I could borrow and they told me it was purely dependent on my income (i.e. my ability to repay the loan). I asked them if things had changed, because I thought that collateral-value was a standard basis for lending and they told me that this was never the case. Maybe they were lying because of the stigma associated with "hoodwinking" at that moment in time, but I took them at their word. The assurance was, however, that lending is based on ability to repay the loan. You can use your imagination for how to establish how much someone is capable of repaying to establish their credit-maximum.

 

[mheslep]

It has always been the case, in the modern US at least, that the first thing banks want to see on an individual loan deal is a demonstrated income stream sufficient to paying back the loan. Banks don't want your collateral so that they have to get into house selling business or the gold coin collection selling business or the yacht selling business, though they are often forced to do so. They just want a monthly payment. It's occasionally possible to use collateral in lieu of income, but considerably more difficult.

 

[WhoWee]

I helped prepare 3 different loan packages in the past few months, for small business owners. In each case, the bank wanted the loan secured with the cash each of them had on deposit. In previous years, 2 of them had borrowed from the same banks to purchase their land and build their buildings - based on business income at that point.

In my lifetime, the banks have never had better rates to borrow at, nor has it been so difficult to borrow (as a business owner).

 

[brainstorm]

It has always been the case, in the modern US at least, that the first thing banks want to see on an individual loan deal is a demonstrated income stream sufficient to paying back the loan. Banks don't want your collateral so that they have to get into house selling business or the gold coin collection selling business or the yacht selling business, though they are often forced to do so. They just want a monthly payment. It's occasionally possible to use collateral in lieu of income, but considerably more difficult.

In other words, banks want you to sell houses, businesses, gold coins, and yachts so they don't have to. Is this a form of indenturement? Of course, there are banks that do sell things for you so that you don't have to but those are called pawn shops and they give you a worse deal. Although the lenders facilitate your indenturement, they are only brokers that help you trade future labor for immediate gratification. Your actual owner(s) is/are the people whose savings you borrowed and whose investments pay your income. These might include you if your net-worth is greater than your debts.

What is "economic recovery" in light of the fact that people become slaves to debt? Is the economy recovered when everyone has sufficient means of income to pay off their debts and be free? If everyone did this, how would anyone save money? Doesn't having savings require someone else to borrow and pay back their debt with interest? Considering that some people are always going to save money requiring others to be held in debt, will the economy ever really "recover" for debters or will they always be caught in a cycle of repayment and new credit lines?

 

[WhoWee]

What is "economic recovery" in light of the fact that people become slaves to debt? Is the economy recovered when everyone has sufficient means of income to pay off their debts and be free? If everyone did this, how would anyone save money? Doesn't having savings require someone else to borrow and pay back their debt with interest? Considering that some people are always going to save money requiring others to be held in debt, will the economy ever really "recover" for debters or will they always be caught in a cycle of repayment and new credit lines?

Interesting comment (I bolded your words) what do you suppose happens when Government becomes a slave to debt - along with a majority of it's citizens dependent upon (Government) subsidy?

 

[brainstorm]

Interesting comment (I bolded your words) what do you suppose happens when Government becomes a slave to debt - along with a majority of it's citizens dependent upon (Government) subsidy?

A slave broker? Well, technically it depends on HOW the government mitigates the debt and how citizens respond to the mitigation. If, for example, the government would continue its policy of exempting incomes from taxation below a certain threshold, then citizens are not responsible for paying off the debt as long as they limit their incomes to below that amount.

On the other hand, if government decides to repay the debt by taxing the "wealthiest individuals," i.e. corporations, then the corporations will become the slave brokers by extracting the taxes they owe from their clientele and employees.

The question is what a "recovered" economy means and whether it's possible to achieve economic well-being without anyone having to be in debt.

 

[WhoWee]

A slave broker? Well, technically it depends on HOW the government mitigates the debt and how citizens respond to the mitigation. If, for example, the government would continue its policy of exempting incomes from taxation below a certain threshold, then citizens are not responsible for paying off the debt as long as they limit their incomes to below that amount.

On the other hand, if government decides to repay the debt by taxing the "wealthiest individuals," i.e. corporations, then the corporations will become the slave brokers by extracting the taxes they owe from their clientele and employees.

The question is what a "recovered" economy means and whether it's possible to achieve economic well-being without anyone having to be in debt.

It seems reasonable that recovery would be possible in your example if the full production output capabilities of the citizens and businesses could be realized - that is, if EVERYONE capable of being productive was productive?

 

[brainstorm]

It seems reasonable that recovery would be possible in your example if the full production output capabilities of the citizens and businesses could be realized - that is, if EVERYONE capable of being productive was productive?

But doesn't this imply that everyone has to totally submit their labor-productivity to monetary exchange? If I make a sandwich for myself, do I have to charge myself a dollar to make the economy "recover?"

What if everyone cooked all their own meals for themselves and all restaurants closed? Would that inhibit 'economic recovery' even if everyone was sufficiently nourished?

 

[Al68]

But doesn't this imply that everyone has to totally submit their labor-productivity to monetary exchange? If I make a sandwich for myself, do I have to charge myself a dollar to make the economy "recover?"

What if everyone cooked all their own meals for themselves and all restaurants closed? Would that inhibit 'economic recovery' even if everyone was sufficiently nourished?

Yes, assuming you are using meals as an example of the economy as a whole. Because in general, the things bought have more value to the buyer than the labor expended by the buyer to buy them. That's because of the efficiency gained by mass production, as well as the fact that different people are more productive at different things.

For example, if the time it took for someone to cook their own meal cost them more in lost time doing something else than the added cost of buying the meal from someone else instead, everybody loses.

Every voluntary transaction in a free market creates wealth, since the product sold both has more value to the buyer than the price paid and the price paid has more value to the seller than the product sold. Otherwise the transaction would never occur, unless it involves force, fraud, charity, mistake, etc.

 

[WhoWee]

But doesn't this imply that everyone has to totally submit their labor-productivity to monetary exchange? If I make a sandwich for myself, do I have to charge myself a dollar to make the economy "recover?"

What if everyone cooked all their own meals for themselves and all restaurants closed? Would that inhibit 'economic recovery' even if everyone was sufficiently nourished?

Rather than spend too much time with the sandwich analogy - let's look at the US during WWII. Everyone was called upon to do their part. Women went to work in factories, children collected scrap, food and fuel were portioned, etc. There was a clear purpose (survival) and everyone had a role.

The US ran lean and mean - and still incurred massive debt.

Now consider the output and debt if the US had been saddled with our current entitlement programs.

 

[brainstorm]

Yes, assuming you are using meals as an example of the economy as a whole. Because in general, the things bought have more value to the buyer than the labor expended by the buyer to buy them. That's because of the efficiency gained by mass production, as well as the fact that different people are more productive at different things.

No, I'm not making this an example of any "economy as a whole." I'm saying that economy consists of a spectrum of activities between the poles of total corporatism and total individualism/independence. When people make their own sandwiches, this has economic value but needs not be taxed or otherwise harnessed for "the common good." It may already contribute to "the common good" by promoting economic culture of self-reliance which reduces the burden on corporate productivity.

For example, if the time it took for someone to cook their own meal cost them more in lost time doing something else than the added cost of buying the meal from someone else instead, everybody loses.

You are implying that everyone should give up doing anything that is not directly subjugated to corporate management. That is disturbing, imo. What's more, you can't assume that greater efficiency wouldn't be achieved by more independent labor. E.g. Less food is wasted in home food-preparation than in corporate food-preparation, therefore maximizing availability of food-resources for the greatest number of people.

Every voluntary transaction in a free market creates wealth, since the product sold both has more value to the buyer than the price paid and the price paid has more value to the seller than the product sold. Otherwise the transaction would never occur, unless it involves force, fraud, charity, mistake, etc.

Many transaction appear to have value because the buyer has been led to believe something that's not true.

Rather than spend too much time with the sandwich analogy - let's look at the US during WWII. Everyone was called upon to do their part. Women went to work in factories, children collected scrap, food and fuel were portioned, etc. There was a clear purpose (survival) and everyone had a role.

And lots of people got killed and products got destroyed. Then the economy prospered after the war because of a renewed financial lending system that allowed people to finance a larger portion of their houses and receive GI benefits. Both the war itself and the financial system that followed it eventually failed, more or less, but there's this obsession with the idea that it was a good fix, albeit a short-term one. More sustainable economic culture is needed, imo.

The US ran lean and mean - and still incurred massive debt.

Now consider the output and debt if the US had been saddled with our current entitlement programs.

Economic practices need to be designed that allow people to "run lean and mean" (whatever that means) and prosper without debt or entitlement programs.

 

[OmCheeto]

I'm still waiting for the day (perhaps in vein) that I can opt-out of Social Security and instead put that money in a Roth IRA or 401k of my choosing.

Interesting idea. Have you done an economic impact study on SS as a whole if everyone at your income level and higher did this? I'm having a blast investing in the market right now and would love to have had the option of pumping in $300 vs $100 a month. And if my Chrysler Ebola hadn't died last year, it would have been $600 a month.

I bring this back up, as the tax activist group I joined last month referenced a wsj article yesterday, and there were some very entertaining statistics:

http://online.wsj.com/article/SB100...46.html?mod=WSJ_hps_sections_personalfinance"
According to the most recent survey by the Employee Benefits Research Institute, a think tank specializing in the topic, fewer than half of workers have even saved $25,000, and only a third have saved as much as $50,000. Forty-four percent have saved less than $10,000, and a quarter have basically saved nothing at all.

To put these numbers in context: Someone with $25,000 can buy an annuity (with the 3% annual bump) paying maybe $1,400 a year. Someone with $50,000 can raise that up to $2,800 a year. That works out to an income of $54 a week. Good luck with that.

 

[Al68]

When people make their own sandwiches, this has economic value but needs not be taxed or otherwise harnessed for "the common good."

Sure, my point was only that the time used might have far greater economic value, if used for something else.

You are implying that everyone should give up doing anything that is not directly subjugated to corporate management. That is disturbing, imo.

I implied no such thing. Your being disturbed is unwarranted, at least in this case.

What's more, you can't assume that greater efficiency wouldn't be achieved by more independent labor.

Correct. You can't assume either greater or lesser efficiency. It could be either, depending on the specifics.

Many transaction appear to have value because the buyer has been led to believe something that's not true.

Yep. That's why I said "unless it involves force, fraud..." in the post you were responding to.

 

[Al68]

Interesting idea. Have you done an economic impact study on SS as a whole if everyone at your income level and higher did this?

This has been done in cities, before the option was prohibited. Galveston, TX, for example, has been doing it since 1979: http://www.ncpa.org/pub/ba514.

They invested only in low risk annuities instead of stock, mutual funds, etc, so they could have done far better, but here's a graph showing the difference between them and SS:

 

[OmCheeto]

This has been done in cities, before the option was prohibited. Galveston, TX, for example, has been doing it since 1979: http://www.ncpa.org/pub/ba514.

They invested only in low risk annuities instead of stock, mutual funds, etc, so they could have done far better, but here's a graph showing the difference between them and SS:

I suppose that graph would have made sense in 2005:

http://www.ncpa.org/pub/ba514
Galveston County: A Model for Social Security Reform
Tuesday, April 26, 2005

Has the NCPA done a more recent study? God knows if I'd sold my house and invested wisely 2 years ago, I'd be a millionaire right now. On the other hand, if I'd done that in 2005 when the market was at 10,300, and now sitting at 11,500, 6 1/2 years later, that's not really a great return. I figure 1.8%.

 

[Ivan Seeking]

This has been done in cities, before the option was prohibited. Galveston, TX, for example, has been doing it since 1979: http://www.ncpa.org/pub/ba514.

They invested only in low risk annuities instead of stock, mutual funds, etc, so they could have done far better, but here's a graph showing the difference between them and SS:

In that case, you should have no objection to the government simply guaranteeing a minimum and investing in those same mutual funds. This would solve the problem, right? This way the average worker doesn't have to become an investment expert in order to benefit.

Alternatively, if one invests privately, as opposed to SS, and they lose their money, then would you support a law requiring that these people are never elegible for welfare, food stamps, or other government assistance? If they lose their money, they can live on the streets. Right?

 

[Al68]

Alternatively, if one invests privately, as opposed to SS, and they lose their money, then would you support a law requiring that these people are never elegible for welfare, food stamps, or other government assistance?

Nope. No law is needed to choose not to use force to confiscate property for that purpose. As a libertarian, I don't support the laws that confiscate money by force to pay for those things. No one is legitimately "eligible" to receive the property of others via legalized theft. Advocates of liberty figured that out during The Enlightenment.

Of course, since then, many have joined a cult with a different moral code, one that not only allows for legalized systematic theft, but glorifies it. De-enlightened, in other words, by the propaganda of power hungry corrupt politicians.

As Fredick Bastiat wrote in http://bastiat.org/en/the_law.html" , "The law has placed the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others. It has converted plunder into a right, in order to protect plunder...the beneficiaries are spared the shame, danger, and scruple which their acts would otherwise involve."

 

[WhoWee]

In that case, you should have no objection to the government simply guaranteeing a minimum and investing in those same mutual funds. This would solve the problem, right? This way the average worker doesn't have to become an investment expert in order to benefit.

You want the US Government to invest broadly in equity markets?

You do realize the Government would quickly control all public companies? Also, would their investments be limited to domestic corporations? Would they participate in IPO's?

I think this would be a very bad idea.
Conversely, I've long considered it a major mistake not to retain an equity position in the conquered lands of Japan and Germany, especially after rebuilding. I'd have been quite in favor of redistribution of these funds - after paying the debt of course.

Along the same lines, I seem to recall at some point early on in the Iraq debate - oil was a prize to be won - then not long after I recall a speech promising every last penny from oil would go to the Iraqi people.

Full disclosure, I'm a Viking and just don't comprehend going to war with a goal of expanding out welfare state (off topic - I know).

 

[Al68]

You want the US Government to invest broadly in equity markets?

You do realize the Government would quickly control all public companies?

Assuming you're referring to private corporations (with publicly traded stock), I think the Dems prefer to control them by socialist regulation instead of legitimate ownership.

That way they can exercise ownership rights without ownership responsibility.

 

[brainstorm]

Sure, my point was only that the time used might have far greater economic value, if used for something else.

Personally, I think the greatest problem with the economy is that there are too many services that create too much dependency among consumers. Already in the youngest grades, children in schools have their lunches prepared for them, learning materials ready-made for them to "fill in the blanks," etc. etc. They are socialized into economic dependency on means of production that are not under their own control. This is because of all the institutionalized productivity that is already occurring where people produce so much economic value that it becomes possible for many other people not to have to produce such value. One person working at a sandwich shop can make sandwiches for hundreds of people eliminated the need for them to make their own sandwich. As a result, people become accustomed to depending on numerous sources for things they could be doing themselves and they end up wasting fuel and other resources making rounds to take advantage of all those consumption opportunities. What's more, an elaborate economy develops to fulfill all this superfluous consumer-demand, which is what creates the idea that more people should be more productive, i.e. because current productivity is currently not enough, let alone excessive.

My belief is that current economic practices are excessive and that inefficiency has generally increased because people have become so liberated from the need to rationalize their productivity and consumption. This would be a good thing if there wasn't a tendency to normalize economic patterns and seek funding for them instead of rationally consolidating them. If surplus labor-productivity was used to consolidate existing practices into more efficient ones, less and less labor hours would be required to fulfill basic needs and people would get most or at least much of their time back for other pursuits. This is actually what many people believed would happen as a result of mass-production before it became evident that surplus labor hours would get recycled by expanding services, whether for necessity, luxury, or just whim.

 

[OmCheeto]

Given that it appears the topic has been somewhat strayed from, I thought I would throw myself at the mercy of almighty mentordom, and repost a post I made in what I would consider a DOA thread just a few minutes ago, as it seems very relevant here:

http://www.businessinsider.com/forget-the-double-dip-ecri-says-america-is-experiencing-a-revival-in-growth-2010-12"
Dec. 2, 2010
...

What that means is we can finally put the fears of a double-dip recession to bed, says Economic Cycle Research Institute co-founder Lakshman Achuthan.

“In October we were able to rule out this double-dip nightmare scenario,” he says. “We are able to see very clearly, with a good deal of conviction, a revival in growth,” he tells Aaron and Dan in this clip.

The improvements are widespread, Achuthan says.

* Profit growth and productivity are on the rise. Achuthan says that leads to more hiring and capital investment in equipment.

* Housing has stabilized. The outlook may not be rosy, but “it’s not falling off a new cliff,” which means it’s not a drag.

* Cheap capital as a result of low interest rates. The private sector continues to create jobs.

* Pent-up demand. Thanks to the jump in jobs, people are less afraid of losing their positions, Achuthan suggests. And after two years of saving and worrying, consumers have “frugality fatigue” which is beginning to show in the improvements in holiday shopping data.

 

[OmCheeto]

One person working at a sandwich shop can make sandwiches for hundreds of people eliminated the need for them to make their own sandwich.

i believe this is the basis for what we would call an economy. Everyone specializing in doing something more efficiently than people can do individually. Then we exchange these specialized products. If we take your sandwich example to the other end of the spectrum, should we all start making our own cars? I know people who have, and have done a much better job than Detroit, but it took them years.

Though I do understand your point, and I do understand some peoples frustrations when it appears that we're using public money to, metaphorically speaking, wipe peoples butts.

 

[Al68]

If surplus labor-productivity was used to consolidate existing practices into more efficient ones, less and less labor hours would be required to fulfill basic needs and people would get most or at least much of their time back for other pursuits.

This is exactly what has happened, far fewer labor hours are required to fulfill basic needs. The difference is most people want much more than that.

This is actually what many people believed would happen as a result of mass-production before it became evident that surplus labor hours would get recycled by expanding services, whether for necessity, luxury, or just whim.

You got it right with "luxury". Most people would rather work 8+ hours a day for someone else and live in relative luxury than to work fewer hours at a job, but live poorer.

But I do know someone in particular who just works part time for that very reason. He inherited his house, grows a garden, has chickens, cooks his own meals, washes dishes by hand, etc. He doesn't live rich by any means, but he seems more content than most would be without the standard of living most in the U.S. desire. And he's not even Amish.

But most people would rather take full advantage of the fact that their time is far too valuable to spend it cooking, sewing, washing dishes, etc.

 

[brainstorm]

i believe this is the basis for what we would call an economy. Everyone specializing in doing something more efficiently than people can do individually. Then we exchange these specialized products. If we take your sandwich example to the other end of the spectrum, should we all start making our own cars? I know people who have, and have done a much better job than Detroit, but it took them years.

Economy just refers generally to labor, productivity, utilization of resources, consumption, etc. Economics occurred before industrialism, and economic activities may still be broadly identified as pre-industrial, industrial, or post-industrial. Many post-industrial economic activities are reminiscent of pre-industrial activities that are made possible by surplus labor liberated by automation and mass-production efficiency gains. Where industry lays-off workers, these workers can be utilized for services such as house-servant, food-service, etc. The question is whether it is economically beneficial to put all these industrial layoffs to work for each other in just any type of service since it creates unnecessary service-dependency and higher expectations for consumption that are simply not possible for everyone to attain when they are service-intensive.

Though I do understand your point, and I do understand some peoples frustrations when it appears that we're using public money to, metaphorically speaking, wipe peoples butts.

Right, and what's even worse is that valuable resources are being used and wasted. E.g. people are not walking to each other's houses and offices to "wipe their butts." They're driving and seeking levels of compensation that facilitate consumption of excessive energy and other resources. In other words, they expect to get paid for doing little to consume lots.

This is exactly what has happened, far fewer labor hours are required to fulfill basic needs. The difference is most people want much more than that.You got it right with "luxury". Most people would rather work 8+ hours a day for someone else and live in relative luxury than to work fewer hours at a job, but live poorer.

But there's not enough "luxury" for everyone to enjoy it and, even if there was, would it be worth the resource-drain?

But I do know someone in particular who just works part time for that very reason. He inherited his house, grows a garden, has chickens, cooks his own meals, washes dishes by hand, etc. He doesn't live rich by any means, but he seems more content than most would be without the standard of living most in the U.S. desire. And he's not even Amish.

Technically everyone should be able to live like that since there are enough houses for everyone to inherit one. The reason there aren't is because instead of giving their house to their heir, some people borrow against their house to spend the money and then leave the house to the bank. The bank then has to sell the house to recoup the loan, which initiates the cycle of living on debt.

But most people would rather take full advantage of the fact that their time is far too valuable to spend it cooking, sewing, washing dishes, etc.

Right, but when either private individuals OR government borrows money to fiscally stimulate the economy, the money these people get for their time ends up having to be repaid by the people who borrowed it. If they voluntarily borrowed it, that is somewhat fairer than if the government extracts repayment from them involuntarily, don't you think? It would make more sense to allow the economy to slow down to a level where it's simply not possible for everyone to make as much money as they want so that people will give up expecting to live a lifestyle that depends on other people going into debt, imo.

What would the economy look like if there was no personal credit and no government borrowing/spending? How many opportunities to get rich would there be? Yet, even if there weren't such opportunities, I still think there would be enough economic productivity and resources available for people to live above the poverty line, with basic food and shelter, and maybe even medical care. The problem is some people would rather thrive than survive, even when it means degrading other people's ability to live a non-poverty debt-free lifestyle. The economy the allows people to live free without going into debt even if they can't get rich is the one I would like to see recover.

 

[Al68]

What would the economy look like if there was no personal credit and no government borrowing/spending?

I think the short answer is that the economy would be much stronger, with a higher standard of living in general, if neither individuals nor government could overextend themselves by using too much (unsecured) credit.

Secured debt is completely different, since it results in net positive wealth creation instead of a drain on future wealth creation.

And government borrowing/spending is especially problematic because it uses as collateral an assumed future ability and willingness to confiscate private wealth that hasn't yet been created.

 

[Char. Limit]

Question for brainstorm: Why does there have to be enough luxury for everyone to enjoy? There are people I know who, quite frankly, do not work and do not deserve the level of luxury that, for example, my parents have. In addition, some levels of work are just worth more than others. There's a reason that we pay doctors a lot more than we pay grocery workers.

 

[brainstorm]

I think the short answer is that the economy would be much stronger, with a higher standard of living in general, if neither individuals nor government could overextend themselves by using too much (unsecured) credit.

Secured debt is completely different, since it results in net positive wealth creation instead of a drain on future wealth creation.

What's the difference with secured debt?

And government borrowing/spending is especially problematic because it uses as collateral an assumed future ability and willingness to confiscate private wealth that hasn't yet been created.

Well, you could look at the debt as a potential to fine future abuses of economic prosperity. The government could actually institutionalize a list of fines to repay the debt when they create it.

Still, the problem would remain that the economy would become accustomed to artificial levels of spending, which would make it vulnerable to a future in which this spending was curtailed. It's like if you're used to supplementing your regular income with loans and so you build up a budget based on the total income and then the loans stop (AND you have to start paying them back!)

 

[Al68]

What's the difference with secured debt?

The fact that the debt is secured with property that has more value than the debt. A conventional loan to buy a house, for example, does not reduce the net worth of the buyer.

Well, you could look at the debt as a potential to fine future abuses of economic prosperity.

Not sure what that means, but the assumed future ability of government to confiscate (yet to be created) wealth is what actually provides confidence to lenders (buyers of government securities).

The debt itself, and the way it is planned to be repaid, is the abuse.

 

[brainstorm]

The fact that the debt is secured with property that has more value than the debt. A conventional loan to buy a house, for example, does not reduce the net worth of the buyer.

But you still can't control for asset depreciation. It just depends on what the economy does with the fiscal stimulus from the lending. If it is invested in profit-value-added commerce, the economy will heat in the direction of new meltdown boom-bust cycles. What really needs to happen is for real property as well as other kinds of commodities to be traded with very low, if any profit margins and labor rates need to be kept at a level that stimulates widespread fiscal discipline among consumers. It is good to have forms of income security and labor-protection, to the extent that these prevent people from falling into desperate situations where they spend more than necessary to compensate for their hardship, by taking high interest loans, buying overpriced commodities, etc. But generally I think it would be good for the economy to have people be able to afford basic life necessities such as food and shelter without long-term debt. This is because debt produces a one-time windfall revenue for property-sellers, which creates an expectation of high average income in the future as well. This is a recipe for problems as people cannot afford to keep piling onto their long-term debts throughout their life-course.

Not sure what that means, but the assumed future ability of government to confiscate (yet to be created) wealth is what actually provides confidence to lenders (buyers of government securities).

It means that the government can play an active role in holding risk-takers responsible for the crisis that led to the bailouts by identifying similar behavior and fining it through taxation. So, for example, crisis-creating business deals like house-flipping and other commodity-flipping could be saddled with the burden of repaying the debt and people who hold investments for longer-term would be exempted from repaying the debt.

The debt itself, and the way it is planned to be repaid, is the abuse.

Yes, but it was an abuse to save the butts of the abusers who causes the meltdown. The meltdown was not caused by bad loans, as some people like to believe because it immunizes them against guilt. It was caused by an overheated market that got overheated in the first place by radical profiteering during the 1990s stock-trading and then similar profiteering in real estate once the stock-boom crashed and people were looking for better investments. Get-rich-quick economies cause crash-and-burn meltdowns. What else?