A couple weeks ago I listened to NPR’s Hidden Brain podcast episode Buy, Borrow, Steal: How Debt Became The ‘Sugar-Rush’ Solution To Our Economic Woes. Although household debt is 10% less than what it was 10 years ago, it’s still relatively high and without the payment holidays, many Americans would be in dire straights financially—some are already in bankruptcy.
Although the episode is packed to the brim with useful historical facts on how the US has connected debt to economic progress, I thought the observations below from the episode were some of the more interesting highlights.
Buy, Borrow, Steal: How Debt Became The 'Sugar-Rush' Solution To Our Economic Woes : Hidden Brain
Policymakers have a tried-and-true game plan for jump-starting the economy in times of severe recession: Push stimulus…
- The great collapse of 2008 started a year before Lehman Brothers went bankrupt
- Economic disasters are almost always preceded by an increase in household debt
- Prior to the 1980s, a home equity loan was called a second mortgage. The name change was invented to make home owners more comfortable borrowing against their home
- The rise in debt and the rise in credit is very closely linked to income inequality and wealth inequality
- Saving Glut of the Rich: The rise in wealth inequality is connected to the rise in the push to get people to borrow more of that money that the wealthy are trying to find some place to invest.
- Mortgages being taken out in America are directly linked to the decisions being made by the Chinese Central Bank that want to lend more to American borrowers.
- Debt is protected against declines in the economy — at least protected before the equity holder (e.g home owner). It’s the non-rich that’s taking the majority of the risk.
- The financial system protects the interests of lenders over the interest of borrowers. A crisis means that the rich come out relatively even or even ahead, while the poor lose a lot of ground — which means income inequality widens even further.
- The rich shouldn’t be seen as the villains in debt financing. The financial sector guides this money via government encouraging debt financing.
- The real Issue is not household, government or corporate debt, its productive debt vs unproductive debt. Unproductive debt is debt that’s just fueling spending and not used in a productive activity.
- Even though there is an appeal to do these short run “sugar rush” solutions, lets just get people to borrow a little bit more. Ultimately it’s not going to be sustainable.
I’m currently reading the following book mentioned in the episode.