"Do you think debt/earnings ratio can keep climbing without imperilling the ability to make current/future purchases? Please explain, I'm curious.
As long as earnings increase, yes. this is basic. do you really not understand that?
If a someone is making $50,000/yr and servicing $150,000 of debt, do you think that negatively impacts his ability to make additional purchases today and tomorrow?
obviously it depends on other factors like the rate of interest and other fixed costs incurred by the borrower. Without such the question is unanswerable.
Lower interest rates will increase the amount of debt he can service, but you do realize there is a limit, right?
there is certainly a limit but it's not the one you bears keep hyping - I personally don't mind if somebody has to pay out the same out of money to borrow more money at a lower rate. It's the same principle (pun intended) as you folks get in such a tizzy about that people have been getting lower rate mortgages that allow them to buy bigger, more expensive houses for the same bottom line as they could previously buy smaller, cheaper houses at higher rates. I like people getting more bang for less bucks!
What happens when someone takes on more debt than they can service? They default.
some do, some have, some always will. duh. this has happened since near the dawn of earth and yet the earth still turns.
Many people are going to learn that what they always considered their savings were really someone else's debt
this is beyond hyperbole and not applicable to myself.
and when the defaults start rolling, well, we've played that game before...
I'll leave it to you, I've never played that game before as I'm not that stupid. But thanks for the admission as the rest of your fearmongering all makes sense now ;)
That's why absolute measures wouldn't tell you much. It's why the notion of "record" deficits isn't as important as what proportion of GDP those deficits represent. However, the graph isn't a graph of absolute debt, but instead of the ratio of debt to GDP (the means to pay off the debt). In short, it specifically addresses your argument of debt increasing correspondingly with GDP by showing how much faster it has grown than GDP of late.
The only time that wasn't true, and the graph inadvertently shows it, is during periods of economic stagnation or decline.
The reason the debt ratio spiked after (as opposed to before or at) the market collapse of '29 was because GDP declined faster than debt initially. After a period of readjustment, and even in spite of FDR's deficit spending binge, the defaulted debt came off the books, and the ratio subsided.
Do you really wish the economy would perform like it would during the years of depression?
My fear is that the government will foster another long period of economic stagnation, yes, but I don't wish it. I see the same factors at play. A federal reserve fostering a credit bubble, trade under attack, and incessant government meddling in business. I don't foresee another FDR trying to turn our nation into a fascist state, but who foresaw him?
"Do you think debt/earnings ratio can keep climbing without imperilling the ability to make current/future purchases? Please explain, I'm curious.
As long as earnings increase, yes. this is basic. do you really not understand that?
In all politeness, I suggest reading more closely. Do you think the debt/earnings ratio can keep climbing without imperilling the ability to make current/future purchases?. We now make about $100 for every $300 of debt. As unavoidable consequence, production in the future must be allocated to pay for our consumption in the past. If we continue spending a larger and larger portion of the money we will earn tomorrow today, what will we spend tomorrow? The recession is when 'tomorrow' arrives, and the consumer can't take on anymore debt, forcing production to realign with his reduced demand while he works off the excess debt. Greenspan has managed to delay this unavoidable curative aspect of markets and as consequence made the final reckoning that much worse (by putting that much more debt into the system to be worked off and sending producers demand signals that are higher than they would otherwise be).
If a someone is making $50,000/yr and servicing $150,000 of debt, do you think that negatively impacts his ability to make additional purchases today and tomorrow?
obviously it depends on other factors like the rate of interest and other fixed costs incurred by the borrower. Without such the question is unanswerable.
Actually, it's not. It's really very simple. When you borrow, you are foregoing consumption in the future, for consumption now. Hence, debt based consumption negatively impacts the amount of money available for consumption in the future. It is already allocated to pay for yesterday's loan, it can't be used for today or tomorrows new spending.
If I borrow $50,000 to buy a Corvette I have to pay that thing off. My $1000 a month car payment for the next five years is going toward that car, made in the past. That $1000 every month for the next 5 years isn't available to GM or any other producer until the debt is serviced and erased. If I kept buying cars soon all my monthly income would be taken up making car payments, with no money left over to spend on what I want today or tomorrow.
When the debt load reaches zenith GM and other producers are forced to realign production with current demand, and if I'm stuck servicing yesterday's debts I've got no money to make demands on them with. That's when they start laying off workers and reducing production. It's not until I erase the debt and can afford to start buying again that they can increase production and start hiring again.
What happens when someone takes on more debt than they can service? They default.
some do, some have, some always will. duh. this has happened since near the dawn of earth and yet the earth still turns.
I don't expect it to stop the earth, but simply intended to point out that periods of excessive credit are followed by excessive default.