by Ken Vincent, Featured Contributor
IT SEEMS that most of the central banks around the world are trying the same slight of hand economics. That is getting out of debt by borrowing more. Maybe I don’t get it but I don’t understand how one gets out of debt by borrowing.
One of the problems for most of us “average” people is that the numbers thrown around by banks, economists, and governments are so huge that we simply can’t relate. Let’s see, the U.S. owes something like $17 trillion. That is $17,000,000,000,000? I’m sorry but my experience simply doesn’t encompass that.
However, we have seen a lot of people, and companies, try to borrow their way out of trouble in the last 6 years. Running up cc balances, borrowing against home equity, financing that new car for 6 years instead of the more common 2 or 3. Borrowing against various forms of equity for companies and issuing bonds. The end result of course was a huge jump in corporate failures and personal bankruptcies.
I am a firm believer that when you find yourself in a hole, the first order of business should be to stop digging. That means in this case, stop borrowing and stop spending.
I’m of the old school that there are really only two ways to get out of debt. That seems to hold true whether a company, a bank, a household, or a country. First is to increase income and second is to reduce spending, or a combination thereof.
Did those simple rules of economics change while I wasn’t looking? Bankers are supposed to be relatively bright people. How can they think that they can borrow their way to being debt free? How can anyone, or any entity, spend itself into financial well being?
Where does all this spending and borrowing stop, who is going to do it, and who is going to pay the piper for this dance?
