Great excerpts of a speech by Paul Volcker in 2005.
From calculatedrisk blog:
Quote:
|
Boomers are spending like there is no tomorrow
|
Quote:
|
Homeownership has become a vehicle for borrowing and leveraging as much as a source of financial security.
|
Quote:
|
I come now to the heart of the problem, as a Nation we are consuming and investing, that is spending, about 6% more than we are producing. What holds it all together? - High consumption - high leverage - government deficits - What holds it all together is a really massive and growing flow of capital from abroad. A flow of capital that today runs to more than $2 Billion per day
|
I feel the key bit is investing and consuming. If we're investing, I view debt as a necessary evil. If we're consuming, debt may not be so wise.
Also, debt growth, as mentioned above, is around 6% pa. Currently, GDP growth is below the rate of debt growth and below the cost of servicing the debt. If we're borrowing 6% of GDP to expand the economy by 3%, where and how do we regain balance?