Posted by swamphawk22 on 3/13/2013 4:23:00 PM (view original):
What if demand collapsed because of an artifical bubble burst, and it didnt come back because of fear of the debt.
Wouldnt cutting spending make sense then?
Demand did collapse because a bubble burst. But it didn't come back for reasons that are very simple and have nothing to do with the debt.
The bubble burst and a lot of mortgages reset. A lot of people lost jobs. A lot of people were scared that their job would be next.
If your house payment suddenly goes up a lot or you lose your job or you think you have a very good chance at losing your job, you can't spend as much on food, clothes, cars, boats, kitchen remodels, swimming pools, vacations, football tickets, online simulation games, etc.
If you make or sell food, clothes, cars, boats, kitchen remodels, swimming pools, vacations, football tickets, online simulation games, etc., your sales decline. You need less employees or go out of business.
Now more people are unemployed and the cycle continues downward.
There's only one way to reverse that downward cycle, and paying off the debt isn't it.
You have to increase demand. Government spending, tax cuts, low interest rates, & increases in the money supply all do the job at varying levels of effectiveness. Or you cross your fingers and hope it turns around on its own. It's less likely and it's slower, but it's an option.
Bu it has nothing to do with the debt level. People don't make decisions on what to buy or who to hire based on the overall level of debt the federal government is carrying.