My head is spinning

I have always had the sense that being in debt is a bad thing. It’s much better to not owe anyone, work with available resources, and live within one’s means.

But in a reply to one of my posts, it was suggested that the economy would not improve until borrowing increases.

Now, I understand the value of having a line of credit. But the idea that we cannot possibly live within our means just seems out of whack. If we cannot survive without borrowing that means that we are simply building debt. Is that not another bubble?

Sooner or later, that debt is going to have to be paid. How are we going to pay it if we cannot even earn enough to avoid having to borrow even more? On any scale, global, national or local, this seems to me like a really bad idea.

D.D.

COMMENTS

  1. Bruce Welty wrote:

    Well David, some suggestions deserve to be written on the stuff hanging in the bathroom.

  2. Andy wrote:

    I agree very much that people do not live within their means in today’s day and age. People over spend and create an undue debt burden and then file bankruptcy to get out of it while others get to pick up the tab by higher fee’s all over the place…. However, if you were talking to someone about businesses, then I agree with them. The fed has been printing money like mad to keep the markets and business moving and keep money ‘liquid’. There was a delay to it’s effect and from some perspective not the intended effect because banks and others were still very gun shy. Instead of the money doing some circles around the economy and debt being created by purchasing machinery or upgrading facilities, it has been largely held in each companies piggy bank out back. If you catch up on some of the near recent (months) news they have been talking about huge cash reserves. This is a gun shy attitude that needs to be weened off to kick start business purchasing/upgrades/activity again. This is what I hope the person is talking about. From an individual standpoint, debt is OK for a house but nothing else!! The individual should not be utilizing credit card debt or other debt as a means to get ‘stuff’; this is bringing down the economy when the individual goes belly up (TOO often!!). So individual, very much agree; businesses need to spend though and circle that money around the economies of this beautiful country!

  3. Jim Allen wrote:

    I agree with David, debt is only useful to be used in the short term and fully paid at the end of the month. If you can’t to that your living beyond your means and headed for a bad ending.

  4. Chuck R wrote:

    Living within our means is something we should all do. From a personal point of view, we cannot borrow our way to prosperity. Business is different, but only if you are astute enough to develop a better plan, AND follow it. That usually involves knowing something not well known or having a greater skill than the current competition, or perhaps a way to obtain materials at a better price or even use substitute materials that cost less.
    If you follow business news, you will see startup companies that have grown gigantic. They did it with borrowed money – knowing that they had a new method or a better process than what is currently conventional, AND that that process is more efficient.

    You are not likely to make more money building custom cabinets on borrowed money if your techniques, material costs, and overhead are the same as the guy who is spending his own cash or has earned a good line of credit.
    Borrowing money is clearly still an expense. But if you can leverage that money better than the other guy, you have a chance of succeeding. It’s just as simple as that.

  5. Rich wrote:

    My parents came of age during the great depression. They paid cash for everything, a new car and even a house. The criticism that I received for having a mortgage and financing a car was beyond anything that one could understand. I never knew them to ever be “comfortable” in their financial situation.

    In business it is perfectly acceptable to finance the purchase of materials for a job or lease machines. Obviously as invoices are paid so is the credit.

    The real question is: Would you rather run your business with a line of commercial credit or with a home equity line of credit?

    Or as my wife explained it when I was starting a business: “I will support you in anything that you do, just don’t lose the house.”

    Words of wisdom that I have lived by for many years.

  6. Philip Nereo wrote:

    It’s not intuitive, but personal debt and national debt are two different things — Being in debt IS a bad thing for a person, but for a country — Not so much — Have you noticed in the papers that the deficit is going down? Apparently the way it works is that if the country borrows and spends more money, it pumps up the economy, leading to more revenue from taxes.

    Talking about this stuff these days is like walking in quicksand — People hold to their ideas like religious beliefs and you can’t change someone’s beliefs thru discussion and reasoning!

  7. Dave wrote:

    If borrowed money is used for something useful then it generates a return above the cost of the loan. The loan is repaid and the item still exists. For governments, that might be a road. For a utility, a power plant or grid infrastructure. For a person, a home, instead of renting. All good things so long as it’s not done to excess. The economy depends on those investments for growth.

  8. Mark Slafkes wrote:

    I, too, prefer to owe nothing. However, without the ability to have debt, I would never have been able to have my business (residential real estate) or live in my home (home mortgage).
    Of course, without the ability to have debt, virtually none of the wars fought in the past 1,000+ years could have taken place. The “nobility” of Europe would never have been able to kill their enemies without the ability to borrow money NOW so that they could fight now. Don’t get me wrong, I do not support wars of aggression.
    So, debt is complicated and the unintended consequences can be severe. On the other hand, it enables us to have the necessities of life (food, shelter) and be able to work (equipment, material…all before the revenue comes in).

  9. John Gresko wrote:

    D.D.

    It boggles the mind, you are so right. Yet,’our ‘ government is doing that on a daily basis and ‘ our ‘ government is blind to the danger or rather ‘stupid’. They don’t have to worry about someone calling in that debt as it is the American people who are on the hook. When will America wake up? Probably when it is too late.
    J.G.

  10. Gene Howe wrote:

    Couldn’t agree more, David,and Bruce.

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