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Thread: If economic growth stops, what should happen to peoples' debts?

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    Default If economic growth stops, what should happen to peoples' debts?

    Plenty of economic commentators are far from convinced that there are rosy prospects for further growth in the EU and North America.

    In fact, it would be a major feat for those regions simply to stand still for the next 30 years.

    A lot of people get very moralistic about debt. Nowadays, they say that a person who doesn't pay the pricipal and the interest on his debts is a morally inferior person. Now, I simply don't feel that way. I have no debts, and neither do I feel a strong anger towards a person who has defaulted on his debts, provided he didn't knowingly deceive his creditor when he took on the debt. If he took on the debt while actively intending to rip off his creditor, then of course I think that's immoral.

    So let's propose a thought experiment.

    Let's imagine that the current slump in the western world remains in place for the next 20 years. On average, taking into account recessions and periods of low growth, cumulative growth will be less than 0.25% a year.

    Let's imagine that we somehow know that this will be the case.

    In that situation, what is the proper moral status of the debts people have?

    Should they:

    a) pay them in full somehow
    b) pay as much of them as circumstances permit, while continuing to feed and clothe their kids, and maintain shelter
    c) write them off altogether.

    Bear in mind that any money paid towards a debt is NOT being spent in the consumer economy, and growth is not a factor in this thought experiment so it's a zero sum situation. So options a) and b) both entail increasing unemployment, so it begs the question of how we feed and shelter the newly-unemployed people.
    When you see the words "Mises" or "Hayek" in someone's post, just ask yourself: do I really want to ban paper money and go back to gold?

    You have to pity the kind of people who buy into conspiracy theories. I find the following to be the saddest words on the internet: "Re: connection between Bilderberg puppet lady gaga and viral outbreak in ukraine "

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    Politics.ie Member Picasso Republic's Avatar
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    Growth and debts are unrelated.

    Your three options boil down to two real options:

    1. People are responsible for their own actions and pay their own debts.

    OR

    2. All 20 houses in the street pay off the debts of the 10 defaulters.

    Remember the debt must be paid from somewhere and only a combination of more levies and taxes on the general public will accommodate your options 2 and 3.

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    Quote Originally Posted by Picasso Republic View Post
    Growth and debts are unrelated.
    Walk me through how debts get paid without economic growth.

    Take Ireland as an example. How do people pay their car loans and mortgages over the next 20 years if the growth fairy doesn't appear?

    If there's no growth, then consumption growth doesn't happen, by definition. Therefore no new businesses can form without an old one closing, by and large. This creates unemployment. As mortgage-holders and folk with business loans die, life insurers have to pay up for the shortfall. No economic growth, so life insurers have to close down, as their business model depends on steady growth in the stock market.

    If you can make the figures add up, I'll apologise.
    Last edited by feargach; 13th February 2013 at 04:27 PM.
    When you see the words "Mises" or "Hayek" in someone's post, just ask yourself: do I really want to ban paper money and go back to gold?

    You have to pity the kind of people who buy into conspiracy theories. I find the following to be the saddest words on the internet: "Re: connection between Bilderberg puppet lady gaga and viral outbreak in ukraine "

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    If I do not get the money back, which I deposited in the Bank, will my spending power not be impacted with an obvious hit for the economy?

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    Quote Originally Posted by Picasso Republic View Post
    Growth and debts are unrelated.

    Your three options boil down to two real options:

    1. People are responsible for their own actions and pay their own debts.

    OR

    2. All 20 houses in the street pay off the debts of the 10 defaulters.

    Remember the debt must be paid from somewhere and only a combination of more levies and taxes on the general public will accommodate your options 2 and 3.
    Basically, you're admitting defeat: you are unable to address a really simple question.

    I repeat: what happens to peoples' moral obligation to repay if growth does not reappear?

    Was there a word you didn't understand?
    When you see the words "Mises" or "Hayek" in someone's post, just ask yourself: do I really want to ban paper money and go back to gold?

    You have to pity the kind of people who buy into conspiracy theories. I find the following to be the saddest words on the internet: "Re: connection between Bilderberg puppet lady gaga and viral outbreak in ukraine "

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    Politics.ie Member Dreaded_Estate's Avatar
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    Quote Originally Posted by feargach View Post
    Walk me through how debts get paid without economic growth.

    Take Ireland as an example. How do people pay their car loans and mortgages over the next 20 years if the growth fairy doesn't appear?

    If there's no growth, then consumption growth doesn't happen, by definition. Therefore no new businesses can form without an old one closing, by and large. This creates unemployment. As mortgage-holders and folk with business loans die, life insurers have to pay up for the shortfall. No economic growth, so life insurers have to close down, as their business model depends on steady growth in the stock market.

    If you can make the figures add up, I'll apologise.

    If growth is on average 0.25%, as per your artificial scenario, then on average incomes should increase slightly over time.
    Why do people need growth to pay off their debt if it was within their capabilities to do so when they originally took on the debt?

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    Quote Originally Posted by IbrahaimMohamad View Post
    If I do not get the money back, which I deposited in the Bank, will my spending power not be impacted with an obvious hit for the economy?
    It will be impacted, yes.

    I answered your question without delay. Will you answer the OP now?
    When you see the words "Mises" or "Hayek" in someone's post, just ask yourself: do I really want to ban paper money and go back to gold?

    You have to pity the kind of people who buy into conspiracy theories. I find the following to be the saddest words on the internet: "Re: connection between Bilderberg puppet lady gaga and viral outbreak in ukraine "

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    longshortgrass
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    Quote Originally Posted by feargach View Post
    I repeat: what happens to peoples' moral obligation to repay if growth does not reappear?
    Was growth a term in the contracts freely entered into?

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    Quote Originally Posted by Dreaded_Estate View Post
    If growth is on average 0.25%, as per your artificial scenario, then on average incomes should increase slightly over time.
    Why do people need growth to pay off their debt if it was within their capabilities to do so when they originally took on the debt?
    I'll answer your question when you answer the OP. The options are a), b) and c).
    When you see the words "Mises" or "Hayek" in someone's post, just ask yourself: do I really want to ban paper money and go back to gold?

    You have to pity the kind of people who buy into conspiracy theories. I find the following to be the saddest words on the internet: "Re: connection between Bilderberg puppet lady gaga and viral outbreak in ukraine "

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    Quote Originally Posted by longshortgrass View Post
    Was growth a term in the contracts freely entered into?
    I'll answer your question when you answer the OP. The options are a), b) and c).
    When you see the words "Mises" or "Hayek" in someone's post, just ask yourself: do I really want to ban paper money and go back to gold?

    You have to pity the kind of people who buy into conspiracy theories. I find the following to be the saddest words on the internet: "Re: connection between Bilderberg puppet lady gaga and viral outbreak in ukraine "

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