How is personal debt impact the economy?

Edwards Finance > Debt Management

Q. There is a definite connection betweed the creditors and policy- making institutions. I hold some debt, and I also voted for some of those policy makers. The creditors are, by and large, us, as the majority of the public debt is held by US citizens, who, I presume, also vote. And I have one question:How is personal debt impact the economy?

A. -Yes and no (expect anything different from an economist?). Personal debt certainly can be a good thing -- as a grad student who rationally expects to be making considerably more money in the future than I am now, it makes perfect sense to skim a bit of my expected future consumption to both invest in my future and to live a little better now. Of course, things can be taken to far. For the government debt, it depends (for me) on whether the preponderance of the borrowing is used for investments (like a corporation investing in some equipment which they think will bring higher profits in the future) or current consumption (I'd be worried about a company that borrows money just to meet the payroll). -When the borroing is used to increase long term productivity eventually (eg, an education loan) personal debt, within our ability to service has a number of long-term positive effects on the general economy and no (long term) negative ones. When we use debt to finance consumption, there are trade-offs. The consumption reduces inventories and stimulates production, but it also reduces the amount available for savings and investment necessary for long term productivity growth. It matters little who does the borrowing - the consumer, business or the government. The money that is used to finance any of that borrowing is not available to finance any of the other borrowings. In a complex economy, it doesn't matter who borrows the dollar - that dollar is no longer (immediately) available for anyone else to borrow - regardless of the purpose for which it is borrowed. The reality is that the complex interactions of the economy mean we cannot classify debt - individual, corporate or government - as automatically "good" or "bad". It is just as true that we cannot automatically classify the pruporses to which it is put as automatically "good" or "bad" either.

Ask Edwards a Finance Question

Other Questions:

Could you tell me some ideas about Free Debt Management Program?

This expense with my car was going to be my last straw financially. I decided to try to find some way to handle it other than suicide. So I called one of the numbers we give hotline callers who are having debt problems--a place called Genus Cre...

I would appreciate feedback on the debt reduction programs offered by organizations like Genus Credit Management and PDS (Personal Debt Solutions). These orgs are non-profit and have agreements with credit card issuers & banks for lower interes...

In Bankruptcy 1995, Harry E. Figgie warned that the government debt was becoming so large that within a few years, the interest payments would swamp everything else, and it would be impossible to ever pay off the debt, or even afford the intere...

If you answer "yes" to most of these questions our Debt Management Program is designed especially for you. Our program will consolidate your accounts into one "lower" fixed monthly payment and systematically eliminate your debt. What's more...

For the past few days, I have been mulling over whether bankruptcy, "non-profit"debt management, or self-negotiation is the way to go. I am sure many have asked this same question here. My specific situation is $69,000 of unsecured debt with ...

Edwards Finance Menu

Ask a Question
About Us / Me
Contact Me
Privacy Policy

Sitemap

My Favorite Sites

PFBlog
Google Finance
Yahoo Finance
Motley Fool
Nveille's Financial Blog
AllFinanceMatters
Free Money Finance
2MillionBlog
The Terror Finance blog

Q&A Subjects