Monday, August 30, 2010

Spending out of debt

"You can't spend your way out of debt" is a popular saying nowadays. It is true and untrue. Being too much of a blanket statement, it must be broken down. There are two ways to go into debt: the one bandied about most by politicians, and the easier one, is by consumption; the other which is by production, which is more difficult.

Consumption to get out of debt is the idiotic notion where spending more on that which doesn't give a monetary return is supposedly going to help us get out of debt; e.g. 'cash for clunkers.' But, what is that exactly?-it is through government 'stimulus' - taking money from the taxpayers to give it to a targeted group - to get that group to spend their own money by purchasing a more expensive car. The old car which may have worked is to be replaced by a more expensive car, supposedly more efficient. But, one would have to go into debt to pay for said car, and pay higher insurance. If it was a new car, it depreciates a significant percentage just by the signing of the title. It is already losing value. The car which did work was removed from the pool of used cars, and to be destroyed. That is taking a value and destroying that value, and not only destroying value, but leaving waste. On top of all that, with the removal of all those used cars, the existing used cars have a smaller pool to select from, which will drive up their cost to purchase for one who cannot afford a new car. So, it is taking money from all, to give to a group, who doesn't create anything from it other than more debt.

Ever think about that it is the government's way of production in that it can 'produce' what it wants by getting its 'consumers' to pay more in taxes?

Now, to production. This is where one can spend their way out of debt. Production is to a something which will bring back a return - able to continuously bring forth a value. Most businesses do not have the finances to pay for all the overhead when beginning a business, but through loans (debt to create their business); they create a system of production from which that debt will eventually pay for itself, and more, by that value creation.

Businesses are not guaranteed success, so they have to pay more attention to trends, technology and all other factors of business for if there is another place where consumers can go to spend. Government is guaranteed success for regardless of how poorly they perform, it still remains and generally with those fools who have brought about disastrous results from their policies.

So, can one spend their way out of debt? – we need to look at the plan.

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