By Bill Bonner • May 11th, 2009 •
When Ronald Reagan moved into the White House, total U.S. debt equaled 168% of GDP. The next 27 years took the total to 370%; it was heralded as a triumph of the Anglo-Saxon free enterprise system, but it left people with an additional $27 trillion of debt. And now, the economic system that created so many heavy balls and such long chains is in the recovery room - looked after by quacks and prayed for by most of the world.
You can explain the model in a few simple sentences: Encourage people to spend. When they run out of money, encourage them to borrow. When they tire of borrowing and spending, lend them more at lower rates.
As a way for people to build wealth, this economic model of the Bubble Period was as ineffective as a bad banker. It was a 'have your cake and eat it too' school of financial success with an obvious flaw. People noticed it when the correction began. They went to their cupboards and found there was nothing there. Homeowners - who had borrowed heavily against their houses - found their equity had disappeared. Capitalists found they had no capital. Workers lost their work. (more)
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