Econ 101, around 1970. The multiplier effect. Samuelson’s textbook explained it well. If I spend a dollar in a store, at least part of it will go into the wages of the worker, who will spend it in the supermarket, where part of it will pay the employees there… So a dollar that entered the economy would actually result in much more than $1 of value. Wow!
The Chronicle of Higher Education printed a strong article about student debt – calling it a ball and chain. It reports that there is as much student loan debt as there is credit card debt – over $1 trillion. That made me think: I wonder how much debt there is in the USA, in total. Individually we have mortgages, car loans, credit cards, student loans, medical debt. Businesses issue bonds and borrow from banks and from each other. J.P. Morgan Chase lost $2 billion when bonds went bad, but tells its stockholders it’s really not so bad in the grand scheme of things. Then there’s all the debt of governments – not just the national debt, but state and city and school district liabilities for pensions.
I wonder: if all the debt in America were added up on one day, how would it compare to the GDP?
I wonder: is there a multiplier effect for debt?
I wonder: how much of the money we count as part of our economy in the GDP is money that is owed rather than owned?
- Will Student Loans Fail? (community.tradeking.com)
- Student loan debt surpasses credit card debt on Credit Reports (prweb.com)
- Double dip recession caused by housing cuts (redbrickblog.wordpress.com)
- The public sector multiplier – a myth? (centreforcities.typepad.com)
- Cities to Grads: Move Here – We’ll Pay Your Debt (newser.com)