REAL MONEY is wages earned.
I work, you pay.
You work, I pay.
We are paid to do work for three reasons:
1 - I don't know how.
2 - I don't have time.
3 - I don't want to do it.
People pull resources out of the Earth, apply labor to it, creating material utility.
Fractional residual benefits of economies of scale accumulate over decades.
Think of this as increased efficiency.
A population of a million can produce goods and services more efficiently than a population of twenty.
Another way of looking at that is to see the average citizen from a population of a million has a higher standard of living than the average citizen from a population of twenty.
Over time, with population growth & increased efficiency, real money increases with or without consumer credit.
Consumer credit allows real money to increase at a higher rate.
CONSUMER CREDIT is ethereal fiat funny money fabricated out of the clear blue sky.
Credit is a promise of future labor.
I can work thirty years to save the money to buy a house then - or - I can mortgage a house now and promise future labor.
Same for car loans.
Same for school loans.
Same for credit cards.
It's all based on promised future labor.
The extension of credit is based upon how someone "feeeels" about the promise future labor.
As such, credit can expand and contract based upon how someone "feeeels".
When the economy is flat so is credit.
When the economy is roaring credit expands.
When the economy sucks credit contracts.
It will return when someone "feeeels" better about future labor.
NATIONAL DEBT is more funny money and is also credit, therefore, a promise of future economic activity by taxpaying citizens.
Critics like to complain about fiat money, but ironically seem to have little problem with bank money.
And just like bank credit, national debt can expand & contract depending upon the goals of a government.
Since the purpose of a government is to govern, zealously allowing an economy to run its natural course can be irresponsible.
The demand on governmental services is greatest when taxpayer revenue is at its least.
Stand by and a financial disaster will happen.
Financial disaster leads to social disaster and heads roll.
Intervene and resulting ballooning of any deficit spending/quantitative easing will be exagerated.
(I am of the opinion that complaining citizens are better than dead citizens, so by all means: intervene.)
Both of these examples begin the same way as they culminate into an unsustainable wave formation, or bubble.
The housing bubble collapsed not because of CDOs, CDSs and sub-prime loans.
The housing bubble collapsed due to housing production exceeding demand.
Once people couldn't sell their houses in a red-hot economy time frame the market became glutted, the wave became unstable and the whole thing collapsed under a cascade effect.
Zealotous fiscal conservatives promote a "let the chips fall where they may" approach.
Housing valuation decrease = consumer credit decrease.
Consumer credit decrease = consumption decrease.
Consumption decrease = industrial production & capacity utilization (IP&CU) decrease.
IP&CU decrease = unemployment increase.
Unemployment increase = further credit contraction & consumption decreases.
It's a negative feedback loop.
Tax revenue is generated through the simple act of money changing hands.
Consumption decrease = tax revenue decrease.
Citizens don't need the government when the economy is fine.
Citizens need the government the most when the economy is in decline.
Decreased tax revenue when the public increases demand for governmental support is unfortunate.
To increase government support involves increasing government or national debt.
There is always something to complain about.
If fiscal conservatives strictly constrain national debt as consumer credit contracts the national standard of living will grind to a near halt.
Fiscal liberals complain. People lose many jobs. Government loses many jobs. Heads roll.
If fiscal liberals loosely balloon national debt to partially offset consumer credit contraction the national standard of living will be somewhat preserved.
Fiscal conservatives complain. People lose some jobs. Government increases jobs. Heads remain attached to their bodies.
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