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If economic growth stops, what should happen to peoples' debts?


feargach

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Plenty of economic commentators are far from convinced that there are rosy prospects for further growth in the EU and North America.

In fact, it would be a major feat for those regions simply to stand still for the next 30 years.

A lot of people get very moralistic about debt. Nowadays, they say that a person who doesn't pay the pricipal and the interest on his debts is a morally inferior person. Now, I simply don't feel that way. I have no debts, and neither do I feel a strong anger towards a person who has defaulted on his debts, provided he didn't knowingly deceive his creditor when he took on the debt. If he took on the debt while actively intending to rip off his creditor, then of course I think that's immoral.

So let's propose a thought experiment.

Let's imagine that the current slump in the western world remains in place for the next 20 years. On average, taking into account recessions and periods of low growth, cumulative growth will be less than 0.25% a year.

Let's imagine that we somehow know that this will be the case.

In that situation, what is the proper moral status of the debts people have?

Should they:

a) pay them in full somehow
b) pay as much of them as circumstances permit, while continuing to feed and clothe their kids, and maintain shelter
c) write them off altogether.

Bear in mind that any money paid towards a debt is NOT being spent in the consumer economy, and growth is not a factor in this thought experiment so it's a zero sum situation. So options a) and b) both entail increasing unemployment, so it begs the question of how we feed and shelter the newly-unemployed people.
 

Picasso Republic

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Growth and debts are unrelated.

Your three options boil down to two real options:

1. People are responsible for their own actions and pay their own debts.

OR

2. All 20 houses in the street pay off the debts of the 10 defaulters.

Remember the debt must be paid from somewhere and only a combination of more levies and taxes on the general public will accommodate your options 2 and 3.
 

feargach

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Growth and debts are unrelated.
Walk me through how debts get paid without economic growth.

Take Ireland as an example. How do people pay their car loans and mortgages over the next 20 years if the growth fairy doesn't appear?

If there's no growth, then consumption growth doesn't happen, by definition. Therefore no new businesses can form without an old one closing, by and large. This creates unemployment. As mortgage-holders and folk with business loans die, life insurers have to pay up for the shortfall. No economic growth, so life insurers have to close down, as their business model depends on steady growth in the stock market.

If you can make the figures add up, I'll apologise.
 
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IbrahaimMohamad

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If I do not get the money back, which I deposited in the Bank, will my spending power not be impacted with an obvious hit for the economy?
 

feargach

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Growth and debts are unrelated.

Your three options boil down to two real options:

1. People are responsible for their own actions and pay their own debts.

OR

2. All 20 houses in the street pay off the debts of the 10 defaulters.

Remember the debt must be paid from somewhere and only a combination of more levies and taxes on the general public will accommodate your options 2 and 3.
Basically, you're admitting defeat: you are unable to address a really simple question.

I repeat: what happens to peoples' moral obligation to repay if growth does not reappear?

Was there a word you didn't understand?
 

Dreaded_Estate

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Walk me through how debts get paid without economic growth.

Take Ireland as an example. How do people pay their car loans and mortgages over the next 20 years if the growth fairy doesn't appear?

If there's no growth, then consumption growth doesn't happen, by definition. Therefore no new businesses can form without an old one closing, by and large. This creates unemployment. As mortgage-holders and folk with business loans die, life insurers have to pay up for the shortfall. No economic growth, so life insurers have to close down, as their business model depends on steady growth in the stock market.

If you can make the figures add up, I'll apologise.

If growth is on average 0.25%, as per your artificial scenario, then on average incomes should increase slightly over time.
Why do people need growth to pay off their debt if it was within their capabilities to do so when they originally took on the debt?
 

feargach

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If I do not get the money back, which I deposited in the Bank, will my spending power not be impacted with an obvious hit for the economy?
It will be impacted, yes.

I answered your question without delay. Will you answer the OP now?
 

feargach

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If growth is on average 0.25%, as per your artificial scenario, then on average incomes should increase slightly over time.
Why do people need growth to pay off their debt if it was within their capabilities to do so when they originally took on the debt?
I'll answer your question when you answer the OP. The options are a), b) and c).
 

feargach

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rockofcashel

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Irish people will pay back all their debts... and we'll go hungry if we have to

My 12 year old came in to me last night to ask for help with a school project about the Famine...

She was gob smacked when I explained to her that right through the Famine, the Irish paid their rent and exported food from the country... because you have to pay your debts...

Then, like now, the smarter ones just left... while the majority of the rest starved..

And you can be damn sure a decent proportion then, like now, were telling the cottiers.. you have to pay your debts

Plus ca change, plus c'est ca meme chose...

We are on the whole, a servile nation
 

feargach

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Goodnight Dick...
Found the gap in the armour of the die-hard fanatic. Ask them a simple question and first they evade it, you ask again and they just get abusive.
 

feargach

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kryton101

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Growth and debts are unrelated.

Your three options boil down to two real options:

1. People are responsible for their own actions and pay their own debts.

OR

2. All 20 houses in the street pay off the debts of the 10 defaulters.

Remember the debt must be paid from somewhere and only a combination of more levies and taxes on the general public will accommodate your options 2 and 3.
The sad reality is that ALL money is debt. The creation of money by banks is an exercise in creating debt. Over the last 100 years and more recently the modern practice of banking called fractional reserve banking is heavily dependant on debt creation as the mechanism for ecomomic growth. Modern money mechanics which is a fed document available on line clearly shows this.

How else did we have say 1 trillion of money in the world in say 1950 and then 10 trillion in 2000? Where did the 9 trillion come from?? The non thinking answer is 'growth' which means nothing. companies and individuals just exchange money and as a result some become preferencial beneficieries in that they accumulate more than others. But no business prints money or creates it, only banks do that and when they do it through bonds bought by governments they create debt.

Here an interesting question, if there is 10 trillion of money in the world and there is say 10% interest owing on it then where does the interest come form?? Interest is quite simply money which has not yet been created yet.

Throw in inflation to constantly devalue everything we do and its not hard to see that money is a spiral of endless debt we can never escape from. If all the debt in the world was to be repaid from individuals to bansk to country's there would quite simply be no money in existence. In fact you'd owe everyone somewhere something if you took the interest into account.

The best pyramid scheme going, and the great thing is no one see's at such. Hence comments like the above that isolate growth and debt when in fact they are one in the same.
 

Mad as Fish

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Basically, you're admitting defeat: you are unable to address a really simple question.

I repeat: what happens to peoples' moral obligation to repay if growth does not reappear?

Was there a word you didn't understand?

You can add to that by noting that for every irresponsible borrower there must be an irresponsible lender, so if a bank has lent irresponsibly then what effect does that have on the moral obligation to repay all of the loan?
 

Mossy Heneberry

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If we don't have economic growth we won't have

* job growth.
* wage increases.
* job promotions.
* Stagnant or even reduced public services.

All those things will definately have a negative affect on people in debt.

So what will happen? Some people will continue to pay their debt as economic stagnation hasn't affected them, some will continue to pay but struggle, while others will simply have to throw the towel in and declare bankruptcy or somesuch.
 

YouKnowWhatIMeanLike

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If I do not get the money back, which I deposited in the Bank, will my spending power not be impacted with an obvious hit for the economy?
"beauty" of emigration, Ireland is now in the business of exporting people again. you will just disappear from the statistic thereby improving the average in the economy.
 

Mad as Fish

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"beauty" of emigration, Ireland is now in the business of exporting people again. you will just disappear from the statistic thereby improving the average in the economy.
Until such time as we suddenly realise that it is the younger generations that spend the money, develop the businesses, care for the infirm and so on.

I think I might have mentioned this before but if 46,000 people left last year and let's say 75% were young free and single then that is a potential 25,000 less weddings to be held in this country. That's 25,000 less venues hired, florists required, photographers needed, dresses worn etc, not forgetting all those wedding presents which won't be bought over here. No wonder Black Tie went under.
 
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