Sunday, October 9, 2011

A must-read for Americans.

Every American should read Karl Denninger's cold piece "OWS: Want To Turn The Tide?" if they ever want to liberate themselves from the debt-slaves that the collective American people are. Why, with all the increases in technological productivity and supposed economic growth, do American's find themselves dependent on debt to buy everything? Too liberal access to credit and debt-leverage have caused prices to shoot through the roof, particularly in the areas of education and medicine.

No, Colleges really don't have to be thirty grand a year, and most medical services don't have to bust your lifetime savings. All of these outrageous expenses are the result of increased leverage in the system. A viscous cycle if there ever was one.

The crippling effects of these monstrous price increases are exacerbated by the bank's eagerness to make a profit at your expense. Think that you're getting a good deal by borrowing the money to buy that phone, or car, or house? Think again. All that glamor and opulence displayed in the sky-rise palaces of the bank industry were built from your interest payments.

Dave Ramsey had it right all along. If you want to live in financial peace, and if you want your money invested in productive efforts that truly benefit society, and not to pay off some bankster's outrageous salary, don't go into debt.

Sometimes I worry about saying the blatantly obvious. But in a world filled with rationalizing idiots who can't figure out the obvious, it becomes necessary to expend the little energy it takes to point it out. But if you need help, go to Dave Ramsey because I'm not here to hold your hand.

But moving away from the personal-financial perspective of Denninger's analyses, what intrigues me more is the economic effects of increased leverage that serve as the much more salient point in Karl's message. Austrian theory teaches us that huge malinvestments lead to economic crashes (I don't think Denninger is an austrian, but his analysis arrives at the same conclusion). By swelling the financial sector through debt-consumption - financial sector debt is roughly 1/3 of the total 52 trillion dollars of debt, a ridiculous increase from its place at .85% before this leveraged financial experiment began - the economy has set itself up for an inevitable crash once the ponzi-scheme stops. And it will stop, it mathematically must stop.

All this mainstream claptrap about how debt is an unmitigated good for the economy is nonsense. It can be just as deleterious for the economy in the long-run as it can for an individual. Keynesians, disabuse yourselves of the beneficial nature of debt. Neo-Classicals, understand that it actually makes a difference.

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