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By A Smith (anonymous) | Posted September 04, 2009 at 15:27:40
JonC >> you have just argued in favour of governments borrowing money to increase GDP, as in his world, at a bare minimum there is no negative effect, as the net sum is zero.
Let's take this slow...
1) Within the world, the amount of net debt is zero. This is because, for every dollar loaned out, there is a person who is being paid back.
2) Loans do NOT create GDP out of thin air. For example, if I loan you a million dollars and you start a software company that goes bankrupt, you will have been responsible for destroying wealth.
In contrast, if I had loaned that same million to someone who runs a profitable software company, I will get paid back with interest.
In the first scenario, the issued debt delivers a bad result, because it's deployment results in products that cost more to make than people are willing to buy them for. In the second case, the issued debt has been a success, because the company can produce a product for less than the value consumers place on it.
3) Governments do not have to make a profit. This means they can invest in projects that cost more than they deliver in benefits and they never have to declare bankruptcy.
>> The issue that has arisen from being a debt owing society is that GDP is a measure of consumption, and we can all consume a little more because of all the money being lent out.
There is nothing inherently wrong with debt, as long as the money being lent out goes to people who can add value to the resources they employ. Otherwise, people would keep everything they earn and good ideas would never get the resources they need to expand.
The key to ensuring that debt is helpful to society, is PROFITS. As long as loans go to people who can pay them back, the amount of debt is irrelevant.
On the other hand, having government bail out banks that fail to deploy resources profitably, is nothing more than rewarding failure.
If society wants more wealth creating investments, what sense does it make to give investment dollars to people who can't add value to the products they produce?
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