We live in an economy that has become deeply dependent on the American consumer for growth.
The guy is an idiot - like most keynesian economists. The "growth" usually means growth of
production - which could only happen due to accumulation of the productive capital that allows to increase productivity per person and equip additional workers.
In order to accumulate the productive capital, the real resources must be
saved and
invested in profitable ventures rather than
consumed.
If you spend 7 hours a day growing corn for consumption and 1 hour maintaining soil and tools, your economy does not grow. If you spend 6 hours a day growing corn and save one hour a day to improve the field/tools, in the beginning the consumption will drop by 1/7 but with years the productivity will increase and consumption will finally reach and exceed the starting one.
Alternatively one can stop waisting 1 hour a day on maintaining soil and tools and spend all 8 hours growing corn for consumption. The consumption would grow 1/7 immediately but then decline to nothing as soil gets exausted and tools wear off.
More contemporary example would be instead of buying a car and using it up you could buy the same car and invest it into a business, while driving an old one car for personal consumption. Actually you would just invest the car's worth of money into the company rather than delivering a car but it makes no difference resourcewise.
As a result a new business is working of which you are a part-owner, enjoying additional revenue stream, while the new company is cranking out the products, causing their prices to drop and our real wages (purchasing power) to raise.
Or at least we should invest into the business enough to replace the worn-out capital -cars, machinery, skills. One can achieve a great increase in consumption by not replacing the worn-out capital. That is called "capital decumulation". We can buy cars for personal use instead of for business, use lumber and metal for bigger houses instead of replacing machinery, train social-studies majors instead of engineers and workers. Then once the factory gets worn out and trained old workers retire, we end up with ... nothing. Textile industry... gone. Steel industry... almost gone. Consumer goods manufacturing... gone. We had great time living down the capital accumulated by our ancestors.
If the US economy is really growing - and that is a big "if", it may not have been for a while, whatever the government numbers say - it is certainly not because of consumption but because of savings (of real resources - so called "real funding", not paper money or computer account balances).
There are two kinds of savings that are currently fuelling the growth (or slow the decline) of the US economy - the savings of the foreigners subcidising us via negative trade balance and the "forced savings" that steal the value of people's savings in favor of the recepients of the newly-printed money and credit expansion.
Anyway, whatever real resources the foreigners invested into us in exchange for the dollars, IOUs and shares of capital, they will not be able to collect if we default - like we did to those suckers in 1971.
The elderly with depreciated savings and unfunded social security obligations can go play with themselves, since even voting 100% tax rates will not raise enough taxes to cover their living and medical expenses. And as they die out of hunger, their share of votes will drop rapidly and so their taxing power.
So for the rest of us the choice to make is based on what course the eventuall resolution will take.
If the Fed will have to inflate exlosively in a futile attempt to honor the nominal obligations (FDIC insured accounts - get your guaranteed $100,000 and buy a whole chicken, SSA payments, etc.) - it will pay off to be deeply in debt. You buy a house for a million and then pay off that million when you raise and sell ten chickens.
If the Fed freezes accounts, stops printing new money and changes currency so that 35 trillion outstanding dollars are invalidated, that will cause an explosive deflation, with prices/salaries dropping and that expensive house bought on credit being impossible to repay and having it reposessed.
One way to exploit either situation is getting a huge loan and investing it into something that cannot be reposessed - like having children or a few pounds of gold coins.
If inflation hits, you sell a kid or some of your hoard and repay easily. If deflation hits, you declare bancrupcy and live off your children/gold with just a bad credit rating.
For the older guys - do not spend money on medications/treatment that will prolong your life. Instead spend it on fun that would shorten it - alcohol, smoke, lose women, junk food, etc.
How is that for financial advice?
miko
