For every debtor there is a saver – Not!

The myth that leads to bubbles.  The myth that Bernanke and Greenspan believed, that allowed them to miss the two biggest bubbles in U.S. history….. they believe that for every debtor there is a savor, for every dollar of debt, someone else has that money on deposit.

The comments section of this article touches on this point.

But the issue is that they do not realize that credit cards and mortgages create money out of thin air for the borrower.  There does not have to be banking reserves on hand in order for you to use your credit card, tap your HELOC, or even apply for and get a new mortgage.  So ALL of that debt that piled up in the oughts was ignored by keynsian economists who did not understand it’s impact on GDP, and on the creation of speculative asset bubbles.  And still, they apparently don’t understand it.

Interestingly, they do know that the fix for our ailing economy, at least on a short term basis, is more government spending.  But they also don’t understand that US Government “debt” isn’t really debt and does not need to be paid off by our grandchildren, or anyone else for that matter.

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