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1. admin
   Key Master
   Posted 1 year ago #
   

   Economist Paul Krugman wrote an article in today's Op Ed section of the NY Times where he advocated defaulting on loans instead of paying down debt as a way to get out of our "economic mess".

   You can read it here:

   http://krugman.blogs.nytimes.com/2010/09/25/default-is-in-our-stars/

   We were particularly struck by this passage --

   A naive view says that what we need is a return to virtue: everyone needs to save more, pay down debt, and restore healthy balance sheets.

   The problem with this view is the fallacy of composition: when everyone tries to pay down debt at the same time, the result is a depressed economy and falling inflation, which cause the ratio of debt to income to rise if anything. That is, we’re living in a world in which the twin paradoxes of thrift and deleveraging hold, and hence in which individual virtue ends up being collective vice.

   While there might be a case to be made for local and state governments defaulting on loans it's another matter entirely to advocate that individuals default on their debts rather than saving and paying them down.

   Is a "save and paydown" strategy really bad for the overall economy?

   If you loaned someone money and they defaulted, would that be OK if it helped the overall economy?

   Discuss in the comments.

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2. Agustin
   Member
   Posted 1 year ago #
   

   I agree that focus on saving is the worst thing could be made. One of the few things I understand about economy is that money can't stand still. But the opposite is not at all good, in my opinion. We can't make a fresh start. We all have to learn something from that crisis. There must be a balance between to pay down debt and to keep on spending. A crisis is not time to save. We should save on times of plenty.

   In answer to the last question, probably I will expect my money back but I think I would make things easy.

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