is debt good or bad?

[Paul88]

Why are they leaning on the bankers to lend more to businesses? Why is the right thing for businesses to borrow money to invest in growth and it is the wrong thing for the country?

Why is it right for our children to have to be saddled with debt for the whole lives in the hope of a better income from a good education?

Most of us have a mortgage and we might not like the amount of interest we have to pay back but we judge it is better than the other options: we are borrowing to invest in our future and actually get somewhere good to live in the meantime.

Interest rates are at record lows for governments as well as individuals. High inflation is simultaneously eating away at the real value of the debt.

This incredibly damaging drive by the tories to cut the deficit so quickly is crazy. Sell our forests. Destroy the NHS - the changes are largely driven by an attempt to save money, 4% real terms cut a year for four years - they call it bureaucracy but that includes all strategic planning. The list goes on.

No other country with a deficit is doing this in such an extreme way.

Debt is not a bad thing in itself but it depends what it is spent upon. Gordon Brown himself adopted the fiscal policy Rule* many years ago defined as only borrowing money over the economic cycle to use for captial investment that benefits future generations... not day-to-day spending that benefits taxpayers. The idea being to operate a surplus in growth periods balanced by debt in the decline periods... which in a largely growing economy, over the economic cycle, should result in a surplus over time.

He singularly failed to keep up to his own adopted benchmark, operated a deficit in the growth phase, and the correction to get us back into a 'Golden Rule' situation was always going to be severe.

Should have said Golden Rule

Exactly.

Debt itself is not a bad thing. Unaffordable debt is.

So if you are a small business. Borrowing a sum of money to invest in new machinery is good. So if you say are a factory. You borrow £500,000 to buy a machine making widgets but you think that over three years you can make £1m from it then that's great!

What's BAD is if you are borrowing money to buy things which do not generate wealth. So in the above example, what is bad is if the management borrowed £500,000 and blew it on fast cars & hookers.

And the truth is that the public sector does not generate wealth. Only manufacturing does and the service sector just moves the money around.

No other country with a deficit is doing this in such an extreme way

Personal debt is bad. Throwing school leavers into deep debt before they have even learned to earn their own living - is extremely bad in my view - it inculcates the notion that life on the never-never is a good thing. (I'm thinking of our students, poor babes.)

If I were an economist I would give chapter and verse on the types of debt and levels of debt which do, on the other hand, keep the economy alive and well and indeed thriving.

But I'm not so I'll shut up. But the damping down of the economy done so far by our glorious leaders doesn't appear to be helping, does it?