Quote Originally Posted by selil View Post
One quibble. States by law (1 exception) are not allowed to run a deficit. States are required to balance their budgets and even scope spending quarterly based on realized tax revenues. There is also a difference between a deficit and debt. A deficit is when you spend more money than you take in. Debt is when you owe on some asset. Consumer debt isn't necessarily bad some forms are actually good (when used for realized goods or balanced by real property value). A deficit is usually a political football depending on where you allegiances lie. A deficit can be a moral issue, or an economics issue with flavors of each blending between the two.
Well, I studied economics with emphasis on national economics for five years, so I'm well aware of the difference between deficit and debt.
To point at debt equals pointing at a history of deficits.

Consumer debt is not good - it's not good at all at the macroeconomic level.
For every loaned buck spent by a consumer another consumer spends one buck less - either on consumption or on investment.

I know and understand that it's part of U.S. mythology that consumer spending drives the economy, but that's really not science. The economy grows because of investments larger than deprecations, workforce growth and technological progress.
More consumption can ceteris paribus at most improve production capacity usage (%) - a short-term influence.

The U.S. does not need a return to wild consumption; it needs a return to the times when it saved enough to at least sustain its industrial output without a trade balance deficit. Consumption could easily drop by a fourth at the very same time of industrial recovery.


Guess how the Germans developed their industry out of the late 40's bottom - I can tell you that story is not about wild consumption. It's about reckless austereness, savings and investments till the national capital stock closed in with the right capital stock for the nation's potential (population, skills, technology).