Posted on 02/21/2010 9:14:19 AM PST by mojito
You make $50K a year. You live okay but not in luxury.
If you borrow $10,000 (5 years 8% int) and spend it all are you prosperous? It might feel that way at the time but all you have done is created a liability and future drag on yourself when you have to pay it back. Suddenly that $50K a year is not as enjoyable because with debt and interest payments you now have $47,500 available to spend and in addition that extra $10K you had available to spend is gone.
Or you can borrow another $10K on the same terms and live almost as well as you did the year before less the $2.5K in debt and interest. But in year 3 your debt vs earnings is now 19%. You have $45K a year to spend vs the $50K you earn
or you can borrow another $10k and keep doing it every year until your debt service crowds out everything else.
At some point the laws of math catch up to you and your ability to pay off debt fails when you don’t make enough $$ to even eat and provide shelter for yourself.
You conned yourself into thinking that you were prosperous when in fact all you did was debt yourself into a black hole. In the first few years life was good. At the end you borrowed from one credit card to pay another.
The GDP is the $11,000 billion that all of us private individuals are buying and selling this year added to the $3,000 billion that federal, state, and local governments are buying and selling. The total national debt that the feds owe everyone (mostly us) is $8,000 billion . Back in 1945 when WWII ended, our total buying and selling was just $223 billion (mostly government) and the feds owed $270 billion. Back then we owed more than we made. Right now we make more than we owe. Now is better.
uh huh....
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