The economy of debt

• Economies work best, generally speaking, when people are making decisions based on economic fundamentals, not on tax considerations.
• Debt magnifies risk. If companies or individuals rely on large amounts of leverage, it’s much easier for bad decisions to lead to insolvency, with significant ripple effects in the wider economy. 
• A debt-ridden economy is inherently more fragile and more volatile. Encouraging people to take on debt qualifies as a genuinely bad idea.
• Subsidizing debt seems harmless simply because we’ve always done it. But the fact that you’ve had a bad habit for a long time doesn’t make it less dangerous. 
• All of the debt-created money has to be spent into the economy so it will be available for paying off debt. If that doesn’t happen then there will be a scarcity of money even if enough new loans are made to keep recreating the money that disappears when debt is paid off.
• Money saved is money held out of the working economy. Savings that earn interest, compound the problem because not only is the saved money held out of the economy, it’s acting as a magnet to draw additional money out of the system. The accumulated interest money is generally added to the savings rather than spent, compounding the interest and drawing more money from the system.
• What is real in the real economy is the people, talent, knowledge, technology, infrastructure, resources, etc., and most importantly the good will, industriousness, and positive intentions of the people.
• The working economy is trying to pay huge debt out of those tiny blocks of money. To avoid default, it pays the interest, and borrows more money. The producing economy is suffering from a severe scarcity of money, and it’s working under a system where the only way to get more money into the system is to borrow it. So we have a vicious circle where the necessity to pay the existing debt creates scarcity of money, and the only way to relieve the scarcity is to borrow more money, which aggravates the scarcity, which is only relieved by borrowing more money.
• Essentially it’s operating like a pyramid scheme. In order to stay alive it has to grow, and the only way it can grow is to cannibalize and destabilize itself further. The more it grows the more and faster it has to grow, and the more unstable it becomes. 
• Exponential growth is when something grows by multiplying itself. If something grows by a percentage, eventually it will double. The numbers are becoming completely disconnected from the real world.
• Debt isn’t the only thing forced to grow in the economic model. To feed the expanding debt, the whole economy has to grow. It has to expand whether the people in it need it to or not. Manufacturing must increase, sales must increase, and consumption must increase. Businesses have to expand to stay afloat. Their marketing departments convince more and more people that they need to buy more and more stuff. Stuff that uses valuable resources to produce and then often gets sent to landfills a few years later.
• Since the money scarcity and debt pressure keeps increasing, economic growth becomes more and more of a squeeze play. Businesses in the working economy must grow, but overall they have less and less money to do it with, so they’re continually trying to get more from less. The trend is to cut the work force, cut wages, cut benefits, cut the quality of the product or service, and of course, outsource the labor to foreign countries with low wages and poor labor protection -- anything that can be done to get more out of less.
• In the process of creating more debt we are also creating more money, yet the scarcity of money gets worse and worse. 

WHERE IS THE MONEY GOING?

• Economy ends up with a two-class society—interest payers and interest receivers. The interest payers would be working hard and scrambling to stay afloat. The general trend would be that they work harder and longer and receive comparatively less and less for it. 
• The interest receivers would be accumulating more and more resources, living more and more lavishly, and inventing new games to play with money.
• Financiers and investors of all sorts are essentially interest receivers. That includes pension funds, insurance funds, charitable trusts, and various institutions in many areas of society. 
• People who are paying on mortgages, student loans, auto loans, and credit cards are obviously payers, but many people in the modern world are both payers and receivers.
• Financial progress in the middle class has generally been to work your way from payer to receiver. You start out buying a house and putting money into a retirement fund. You work your mortgage down and your retirement fund and investments up, and eventually you can retire as a receiver.
• Then there are the people who fall out the bottom of the payer class. Sometimes they become a different type of receiver—receivers of charity or receivers of welfare.
• If you yourself have made the transition from payer to receiver, you might hope that your children and grandchildren will be able to do the same. With relentless exponential debt growth, the transition becomes less and less possible.

All progress is precarious, and the solution of one problem 

brings us face to face with another problem ... Martin Luther King, Jr.

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While debt is unavoidable, it is wise to keep to as minimum as possible. While we all have debts, debt ridden entities must take extra care in prioritizing spending, avoiding extravagance and wastage. Under all circumstances frugal living is best and that generates lasting happiness. Economic progress at the expense of ecology in reality is destructive.