Using Debt to Fuel Growth

[poiuytrewq0987]

I've noticed that the economically prosperous countries tend to have a huge debt balance (https://www.cia.gov/library/publications/the-world-factbook/rankorder/2079rank.html?country) numbering in billions or even trillions. Does that mean the economy of countries with massive debt many times larger than their GDP is largely artificial (creating wealth out of thin air) or is it actual wealth? If so then the model of using debt to grow the economy should be pursued?

[SwordoftheVistula]

If so then the model of using debt to grow the economy should be pursued?

If you want to end up like Greece

[The Khagan]

Keynesian economics my boy.

[poiuytrewq0987]

If you want to end up like Greece

To my understanding, the problem with Greece is speculation and the downgrading of its credit rating. If those hadn't happened, Greece would be revving along like nothing happened.

[Groenewolf]

Actually using borrowed money for investing and economic activity is called leverage. It does a great job when all goes well, but once the economy does do well it can go really, really bad. In other words if things go alright profits are higher, but if it goes wrong the losses can be crippling. See Greece for example.

[SwordoftheVistula]

To my understanding, the problem with Greece is speculation and the downgrading of its credit rating. If those hadn't happened, Greece would be revving along like nothing happened.

Nope, even if Greece's debts and all payments on it vanished, they'd still be running a deficit. Speculation didn't have anything to do with it other than extend Greece's 'fat years', and its credit rating got downgraded because Greece started to look like they might default on their debt.

[poiuytrewq0987]

Nope, even if Greece's debts and all payments on it vanished, they'd still be running a deficit. Speculation didn't have anything to do with it other than extend Greece's 'fat years', and its credit rating got downgraded because Greece started to look like they might default on their debt.

So, tell me of a way to increase the revenue of the state by using debt. I would assume this is done by using borrowed money to create revenue-generating businesses. And such creation of businesses would also create jobs, thus increasing the average living standards. This is how it is done, yes? The way Greece handled its loaned money was not the right way to handle loaned money because they didn't use it to increase state revenue nor increase the average living standards (which would indirectly increase state revenue by allowing the state to tax more). The result would be a richer country that can pay back what it owe pretty quickly. The important part is the handling of the loaned money I believe.

[SwordoftheVistula]

Why not just let the businesses borrow money on their own to increase jobs? That would be far more efficient and less corrupt, and leave the common taxpayer on the hook when things inevitably go bad.

[poiuytrewq0987]

Why not just let the businesses borrow money on their own to increase jobs? That would be far more efficient and less corrupt, and leave the common taxpayer on the hook when things inevitably go bad.

As other said, Keynesian economics. The government becoming involved is one way to force economic growth.

There could be another way such as the government providing capital to a bank which could lend out money to businesses (but if things go bad, the government is bound to lose money).

[Loki]

Does that mean the economy of countries with massive debt many times larger than their GDP is largely artificial (creating wealth out of thin air) or is it actual wealth?

Many of these have not always had this debt problem, but they were prosperous and wealthy even before that. An escalation of the debt crisis could change that in the future. Debt in itself is not a bad thing and can, indeed, fuel growth and enterprise. However, debt has to be managed realistically, and not get out of control as is the case right now.

A government's debt is different from personal debt, though. Any government can print money and inflate its way out of debt in a worst case scenario. Which is what the US and also the EU have opted to do, on a smaller scale.

[RoyBatty]

I've noticed that the economically prosperous countries tend to have a huge debt balance (https://www.cia.gov/library/publications/the-world-factbook/rankorder/2079rank.html?country) numbering in billions or even trillions. Does that mean the economy of countries with massive debt many times larger than their GDP is largely artificial (creating wealth out of thin air) or is it actual wealth? If so then the model of using debt to grow the economy should be pursued?

Yes in my opinion this so-called "wealth" is becoming increasingly artificial. It's like that guy in the street with the Gucci suit and the Mercedes but all his credit cards are maxed out and he owns nothing but debt.



To my understanding, the problem with Greece is speculation and the downgrading of its credit rating. If those hadn't happened, Greece would be revving along like nothing happened.

To some extent Greece has been caught up in the same global Jewish bank swindle as the rest of the world and it has cost their economy dearly.

However, Greece's rulers / elites were its own worst enemy by mismanaging their economy and borrowing at unsustainable levels. The threw a lot of money down the drain on white elephant projects like the Olympics. A lot of money was more or less stolen. The credit rating downgrades made matters worse (because the cost of borrowing goes up so that the parasitic banks can leech even more at Greece and the European Union's expense) and speculation didn't help but speculators often tend to identify already existing economic weaknesses and attack those.

In other words, the speculators wouldn't have targeted Greece to such an extent if it wasn't already in trouble.

[RoyBatty]

A government's debt is different from personal debt, though. Any government can print money and inflate its way out of debt in a worst case scenario. Which is what the US and also the EU have opted to do, on a smaller scale.

The US Government doesn't print or "create" money though?

Isn't this the preserve of a privately owned bank named "The Federal Reserve"?

[Groenewolf]

A government's debt is different from personal debt, though. Any government can print money and inflate its way out of debt in a worst case scenario. Which is what the US and also the EU have opted to do, on a smaller scale.

Which is bad for the ordinary citizen in the long run since their savings will become worthless thanks to strong inflation, while those with private debt would also profit form this.

[Treffie]

To my understanding, the problem with Greece is speculation and the downgrading of its credit rating. If those hadn't happened, Greece would be revving along like nothing happened.

Greece can no longer pay for its debt, so that's why its credit rating has been downgraded. In addition to this, the growth forecast is -3%.