The Importance of Debt

If you read my previous blog on the economy, you’ll see how I explain recessions as part of the inherent flaw of capitalism. As a recap, it is essentially because business people need to earn more than their customers, and their customers need to make more than the business people. This concept would make one wonder how capitalism works at all.

And one reason it works is because of debt. Debt allows us access to money we have yet to earn. We borrow from the future. Debt is a stabilizing factor that customers and businesses can spend more.

The major problem with debt is the tendency to spend more money than you will have in the future. Once you cannot pay off your debt, the walls of capitalism begin to fall down. Once businesses and customers begin the bankruptcy process, debt is forgiven, and the businesses and customers can spend their future money again. This builds up and becomes once again a booming economy.

Yes, it will fall down again. There will be hard times ahead again. Surviving the next recession should begin with the next boom. Put money aside, even if you have debt. Pay off debts that have high monthly payments. Although credit cards often have higher interest rates, they allow you to borrow from a much further future.

And I am tired.

So.

Until next time

Joe