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"Something" Happened: What The GDP Report Means
- Case-Shiller
- Commercial Real Estate
- David Rosenberg
- default
- fixed
- Foreclosures
- Gross Domestic Product
- Initial Jobless Claims
- Monetary Policy
- Money Supply
- None
- Personal Consumption
- Personal Income
- Personal Saving Rate
- Quantitative Easing
- Real estate
- recovery
- Regional Banks
- Rosenberg
- Savings Rate
- Stagflation
- Unemployment
This article originally appeared in The Daily Capitalist.
Readers will recall that I had noticed that "something was happening" in the economy. After several years of ultra-bearish reporting, I reported that at the very least the economy was not declining further and that perhaps a bottom was forming which would indicate positive news for the economy. I cautiously reported that a "trend" to recovery was not yet evident but that indeed, something was happening. I noted that almost none of my bearish peers seemed to note this trend.
Much of this positive news is a result of quantitative easing (QE) and is not real.
Today's GDP report showing a 3.2% gain for Q4 2010 was more positive than I had anticipated, but it is trending in the right direction. In my November article I anticipated GDP would continue to be "flat" in Q3 and Q4. While I was mostly accurate with Q3, I underestimated Q4. Understand that these are preliminary numbers, and the revision on February 25 may be different, positively or negatively.
There are huge caveats to this GDP report which gives it a mirage effect, as I noted yesterday. But first let's examine the numbers.
Real personal consumption expenditures increased 4.4 percent in the fourth quarter, compared with an increase of 2.4 percent in the third.
Durable goods increased 21.6 percent, compared with an increase of 7.6 percent.
Nondurable goods increased 5.0 percent, compared with an increase of 2.5 percent. Services increased 1.7 percent, compared with an increase of 1.6 percent.
Real nonresidential fixed investment increased 4.4 percent in the fourth quarter, compared with an increase of 10.0 percent in the third.
Equipment and software increased 5.8 percent, compared with an increase of 15.4 percent.
Real exports of goods and services increased 8.5 percent in the fourth quarter, compared with an increase of 6.8 percent in the third.
Real imports of goods and services decreased 13.6 percent, in contrast to an increase of 16.8 percent.
The change in real private inventories subtracted 3.7 percentage points from the fourth-quarter change in real GDP after adding 1.61 percentage points to the third-quarter change. Private businesses increased inventories $7.2 billion in the fourth quarter, following increases of $121.4 billion in the third quarter and $68.8 billion in the second.
Real final sales of domestic product -- GDP less change in private inventories -- increased 7.1 percent in the fourth quarter, compared with an increase of 0.9 percent in the third.
Current-dollar personal income increased $128.3 billion (4.1 percent) in the fourth quarter, compared with an increase of $75.7 billion (2.4 percent) in the third.
Disposable personal income increased $99.6 billion (3.5 percent) in the fourth quarter, compared with an increase of $47.1 billion (1.7 percent) in the third.
Real disposable personal income increased 1.7 percent, compared with an increase of 0.9 percent.
The personal saving rate -- saving as a percentage of disposable personal income -- was 5.4 percent in the fourth quarter, compared with 5.9 percent in the third.
The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.7 percent for the year.
Excluding food and energy prices, the price index for gross domestic purchases increased 1.3 percent for the year.
The bottom line here is that consumer spending was up (4.4%), the biggest increase since Q1 2006, and imports were down 13.6%. Annualized, GDP was up 2.9% in 2010. Core prices were +1.3% for the year.
There are are several important caveats to note while interpreting GDP. The first is that it is a fictional assessment of the economy. It tries to measure aggregate output through spending which results in a meaningless statistic. I do not wish to get into this point as an abstract discussion of economic theory, but for those who are interested, here is an excellent distillation of an explanation of this idea.
The other fact to consider is that if all GDP measures is spending, then an increase in the money supply by the Fed would increase spending. Again, since fiat money cannot be a source of wealth, a rise in GDP as a result of Fed money "printing" cannot be a real economic gain. If it were, then Zimbabwe would be the richest country in the world.
But, the significance of GDP cannot be overlooked since it what the Fed looks at the determine monetary policy.
That aside, what can we take away from GDP?
1. Most of the increase in GDP is the result of QE1 and QE2 monetary stimulus. Ultimately the Fed will "print" $2.2 trillion and pump it into the economy. That has one initial destination: Wall Street.
2. Most of the increase in the stock markets is a result of QE. The increase in company bottom lines is a result of efficiencies, but exporters have had the best returns.
3. A declining dollar has lifted exports and inhibited imports. The dollar has been on a slide since June 2010 which makes US exports cheaper and thus more attractive to foreign customers. The cause of this is QE.
4. The concept that imports are bad and exports are good is false. History has shown that with the rise of imports (since the early 1980s) that the economy has not collapsed, but rather has benefited from trade. This is one of the fallacies of the economic concepts behind GDP. Thus, the decrease in imports and increase in exports will not be a real economic positive. (I am working on a major article on free trade.)
5. Spending is coming mostly from wealthier Americans, not the middle-class. Wage growth has been stagnant, real disposable personal income expanded a modest 1.4% for the year, and the personal savings rate continues to be historically high (5.4%). It appears that increases in wealth has come mostly from debt reduction, not the stock market.
6. Recent (post 2010) spending data is down.
7. Inventory was a drag on GDP, down 3.7% for the quarter. This was a "surprise." This is the biggest decline in 22 years according to David Rosenberg. This is significant: if consumer spending continues to drop off, one wonders what will happen to the manufacturing sector. The latest durable goods report was a -2.5% in December.
There continue to be the factors that act as a drag the economy. These are serious headwinds to a recovery.
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Unemployment remains high at 9.4% (16.7% on the broader U-6 scale). The recent report of initial jobless claims went up 51,000 last week to 454,000. I don't see much that would result in strong employment growth. This is one of the drivers of the Fed's QE policy: the more unemployment remains high, the more money they will pump into the economy.
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Real savings, the capital accumulated and saved from the profit or wages of productive enterprises, still appears to be deficient since production is not expanding sufficiently to expand employment. Banks and individuals continue to deleverage, and lending is still weak, further evidence of a lack of real savings.
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The Fed is inflating. The True Money Supply (Austrian theory) is up 10% the past six months and 15.2% the past three. This increase was measured before the impact of QE2. This monetary inflation will act as a drag on the economy as it eats up savings and capital.
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Home prices continue their slide according to the recent Case-Shiller report. In addition, the shadow inventory hangover is high: last year 2.8 million homeowners received default notices. More are anticipated this year. Commercial real estate is still declining and those foreclosures will continue to impact the ability of local and regional banks to lend.
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The deficit is anticipated to be $1.5 trillion this year. This is starting to have an impact on Treasury rates: they have been going up, making it likely that the deficit will increase further.
The bottom line is that we are seeing monetary inflation and it is impacting prices. Real savings is still in short supply and that is inhibiting growth. Spending will not revive the economy, but an inflated money supply will give the impression of economic improvement, but it will be an ephemera. It will further negatively impact real savings. I would expect similar GDP numbers in Q1 2011, perhaps a bit weaker (wait until the revised Q4 come out to see if I'm right). Unemployment will remain high. This is a recipe for stagflation.
This GDP report is much ado about not much.
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Here's why you're an idiot. And I mean that not in an inflammatory, name-calling, ad hominim way, but in a factual, clinical, empirical way.
You don't see the entirety of the problem.
Even if you were right about QE 1-1000, which, in my humble opinion, you are NOT, your arguments don't stack up in the world of chaos and insanity that we find ourselves in right now. You may say that the world has always been in a state of chaos and insanity, and if that's your argument, then I give up. Because the world is UNIQUELY in a state of chaos and insanity right now. If you don't see this, you are the finest example I have ever seen of a useful idiot.
The problem(s) that make your blatherings irrelevant are largely NOT economic issues; they are social and cultural ones. Ones that tend to destroy civilizations over relatively short periods of time. You can't go sledding down hills any more in America. The lawyers said so. There are cameras in our Wiis and Laptops that are recording our every move to someone, somewhere, for reasons that are at this time unclear. The TSA is trying to convince us that: not only IS there such a thing as security, but that THEY are the ones to provide it at the cost of all personal liberty. And we're buying.
The wheels are falling off many countries of the world, suddenly, violently, and no one knows what it will look like when it is over. Major economic entities are being artificially manipulated by interests who are above any law of the land. It is becoming impossible, unnecessary, and, in some cases, illegal, to help your neighbor during their times of need. There is a US president who is actively pursuing the ability to shut down our internet and related modes of communication.
Politicians and media outlets are discussing a very real future where one is simply not allowed to say certain things that may or may not provoke a crazy-minded individual to use a weapon against their fellow humans. Personal savings are abysmal. Personal debt is insane. Poorly built, heavily leveraged, over-sized and under-engineered houses are being abandoned, and the fallout from this isn't even on the books yet. Kids can't bring plastic knives to school to spread their peanut butter at lunch. Oh... And if your kid is allergic to peanut butter, you can sue a company that makes a food product with trace amounts of peanut residue in it and become independently wealthy, overnight, without creating a single thing.
And, speaking of creating, there isn't any of it around anymore. The US certainly doesn't make much of anything. And our unions have created a reality in which what little we DO make here isn't affordable to anyone.
You "useful idiots" are to be my undoing. It's NOT the economy, stupid... It's the CULTURE! We have been consuming, and suing, and sleeping, and borrowing, and entitling, and sheltering, ...
The economy is the symptom of a degenerate culture, one that has bought the lie that there is a free lunch somewhere, you just have to become conniving enough, wily enough, obtuse enough to grab it.
Game over. I just hope it's a sudden death rather than a long, drawn-out cancer. The useful idiots are going to ensure the latter.
I am too seeing all the same things you are, I just disagree with your ultimate conclusion - and I think I'm doing that on an honest and rational basis.
The main failure I can see in your logic is in that you equate all the bad things you are seeing with some sort of cancer that is growing from within.
Would it be possible to attribute it to the simple fact that our exponentally increasing means of communication are simply showing us the world more honestly?
We can read the Wikileaks diplomatic cables on the web - almost all the secrets of the past 10 years, up to last year. 60-70 years ago possessing even just a few of those illegally could have ended you in jail for decades - or executed.
There's an unprecedented level of transparency and as a result there's an unprecedented level of insight - and yes, the picture is not particularly rosy - it never was!
And yes, there's a backlash against transparency (the TSA, the monitoring, etc.), but that's IMO really just the death cries of an intelligence and security industry that tries to stay relevant. It will take a few decades for it to adopt.
But one thing we learned from human history is that even in much more dire situations civilization manages to muddle through. It's not particularly pretty, it's bloody and messy - but we also learned that ultimately freedom and quality of life tends to increase, not decrease.
I do not say that out of some sort of irrational, eternal, faith based optimism - I just think it's an inevitable rational end result of human self-interest.
But no, I cannot prove that nearly as conclusively as I can prove that there's little linkage between the Fed and food price increases or showing that that the solvency of the USG isn't all that bad, considering historic precedents. It's just a hypothesis.
And yes, if I agreed with your view about world events I'd also agree with you that the data does not matter much: the right course of action would be to sell all paper instruments ASAP and buy silver coins and invest in physical stockpiles of basic necessities.
Well said. There's nothing new under the sun.
Both of you are wrong. The "unprecedented level of transparancy" is something new (and material) under the sun.
Your argument helps prove my point.
I think you misunderstood my point.
I said the truth of the situation was always as dire as we are seeing it today.
The difference is that now we know it.
Unless your point is that us knowing the truth is a bad thing and that us knowing it will make things worse.
So are you saying that you... WON'T keep denying that the earth is flat?...
I was curious who'd notice it first :-)
- "because the two are essentially one and the same thing: they increase bank liquidity"
So the lenders can step up and cherry pick foreclosed realestate and selected bonds.Non TBF banks are shrinking their balance sheets.Bank examiners are forcing them to do it.
When the small buisness man , who creats (ed) 65% of America's jobs gets that QE capital from the lenders your logic might be valid.
Sorry.
FYI, a good deal of recent US growth has come from small businesses.
They might not be getting the loans (and yes, I do find that unjust and morally bankrupt), but they are benefiting from increased growth expectations and they are benefiting from increased consumer spending and optimism.
Note, I'm not defending TBTF corruption at all. It's despicable. I just say you need to stop seeing the world in black and white, see it in shades of grey instead, and decide on a case by case basis.
"The Fed is evil" claim is an over-simplification - some things it does (propping up well connected speculators) is bad, some things it does (stopping the deflationary death spiral, stimulating the economy) is good.
Use critical thinking, do not just accept GOP/libertarian (or Democratic/liberal) talking points at face value.
The economy is a complex system that consists of billions of components - it's not a game of two football teams were you have to take sides ...
Sounds like you're willing to give the Fed a pass on having taken us to dizzying heights in the first place. They, and others CREATED the deflationary death spiral - or at least created the conditions where a death spiral was certain to happen. But then they 'stimulated' the economy (inflated some other bubble) so suddenly they're 'good'?
I'm going to judge the Fed more harshly.
To see the contradictions in your conclusion you only need to look back at how deep and painful recessions were back in the days when the US had no Fed and when the gold standard ruled.
Here's the "Panic of 1893" US recession:
http://lh5.ggpht.com/_VgJQTp0Bsf0/TUXXtHR_P9I/AAAAAAAAAHY/tOUr4y8watA/sl...
Boom and bust was always part of the human condition - and will probably always be. Blaming the Fed is silly.
Yes but the whole premise of creating the FED was to avoid the severe boom and bust cycles. In 1929 just 16yrs. after they started we had the worst financial depression in our history and the worst unemployment. The FED failed miserably. You point out that the debt was much worse then than it is now, but you don't mention the pain we had to go through as a result of it. The turn around didn't come as a result of fiscal responsibility, but rather because of the mass manufacturing and job creation of WWII .
As far as your previous opinion on loans, the big banks borrow at .25% and make 1-3% this is just good business on their part (any business would take advantage of this, is it fair? No but legal), but not good for the taxpayer because this isn't creating jobs when it is invested in financial markets or loaned to corporations to invest overseas. Do we trust these banks with cheap and easy credit to invest responsibly? They almost brought down the whole financial system.
Correct, its 1929 form was inadequate - so in 1933 it got expanded with FDIC, to keep ordinary people from losing all their deposits and also the rigid gold standard was abolished in 1933/34 as well - whose deflationary force deepened the Great Depression.
And with that in place I'm not aware of any boom/bust where ordinary citizens lost all their bank deposits - are you? Nor am I aware of any bust cycle that reached the 25% unemployment level of 1933.
Before the Fed there were a series of severe booms and busts in short successions - one of which I linked to above. The 1893 one looks roughly as severe as the current crisis - and the 1893 one occurred during a global boom ...
The 2008 one is unprecedented since 1930. So if the Fed is a failure, it's a failure with a pretty nice track record, isn't it? :-)
Good track record? Not really, unless your requirements are: under 25% unemployment and insured bank deposits for citizens.
The present situation after 95 yrs. of experience we have 9-10% unemployment (one of the FEDs mandates is to control unemployment) for 3yrs. and these are the bogus numbers. Greenspan after 2 decades in office said he was wrong in his ideology. They didn't see this coming? Realestate collapsed after Ben Bernanke said there might be a correction in the market, but didn't see any danger in realestate collapsing. Greenspan rejected Brooksley Born's reccommendations to regulate the derivatives market in 1998 (25-30T market, now a 600T market) and rallied congress against her, said she didn't know what she was talking about. The FED didn't raise interest rates enough during the realestate boom thus increasing the boom instead of what they are mandated to do. This present crisis didn't develope overnight it took years of irresponsible decision making. I would think that the FED would get better at their job not worse. Most of the fraud happened right under Tim Geithner's nose at the NYFR, and now he is head of the Treasury. There are many examples of their shortfalls but none as big as the present when taking into account their ever increasing power and control. Another issue raising the ratio of leverage to capital which was probably the biggest irresponsible decision that the've supported over and over.
Up to this point I was willing to give you the benefit of the doubt. Either you were being paid to lay out your "views", or you were naive, or just dealing with a short deck. The Fed statement just blew your credibility out of the water. The Fed has been a problem since day one: The entire concept is flawed and it has not been the first time a Central Bank has wreaked havoc. I'll pass on your posts from this point on.
So tell me, exactly where in that graph I linked to do you see the Fed's easing effects?
Hint: the Fed was created in 1913, after the "Panic of 1907". The graph I linked to shows the effects of the "Panic of 1893". The Fed did not exist yet.
Gray?
You didn't really say gray, did you?
This is the equivocation of despots, the moral underpinnings of Mao and Stalin, the lustful cry of the J.P. Morgans, the Barney Franks, the Jamie Dimon's, the Timmy Giethner's of the world!?!?
"It is a complex issue..."
ugh
Must be nice to live in your universe, where there's only good and evil.
Equivocation and Sophistry is seductive, a siren song, the call of the Harpies and Demons of the underworld.
Discernment is a skill, judgement is an art, and only the simple minded seek the blurred lines of gray, the uncertainty of chaos within order, and the certainty of form within fractals.
The paradox of thrift is real too. Some of you buggers need to keep spending. People are very strange. They spend everything and go into debt when times are good rather than save. They reduce spending when times are bad. A little countercyclical.spending and savings policy would go a long way to smoothing consumption fluctuations. We need the savings rate to continue to go down for now. An increased savings rate feeds the deflation monster.
Well, there is no paradox in thrift, unless you base your economy on debt.
Once the governments (national and regional), along with banks and corporations base their operations upon the assumption of debt and societal debt to increase short term gains and profits; they then punish savings and encourage debt spending and speculation in general - which of course pushes down to the individual household. Ooops.
You have to start by incentivizing savings and thrift, and reward of thrift by paying sensible rates upon capital; rather than speculating upon responsible thrift for an excess 15% profit per year.
It is simple, very simple.
So the progress the US has gone through since 1930 was "gambling"? :-)
I'd call it one of those most successful, most prosperous periods in US history, but hey, if you want to call it "gambling", go on - just don't expect your views to be taken too seriously.
Btw., if you think that under the gold standard there were no bad recessions then you are dead wrong - slumps were deep and hard even in the "Gilded Age". Here's the "Panic of 1893" recession:
http://lh5.ggpht.com/_VgJQTp0Bsf0/TUXXtHR_P9I/AAAAAAAAAHY/tOUr4y8watA/sl...
Yes, there was no Fed and there was the gold standard in place with "sound money". The historic fact is that gold made recessions worse.
The progress was based upon the backs of the responsible working class.
We have sold out. In less than 100 years we have debased what was built, what was left to us, for short term gains.
You are trapped within political preconceptions that define your greed.
You seem to have a need to label to justify your position which I don't quite understand.
We have failed. We have squandered our productive capacity for short term gain.
We have squandered our social and human capital for golden toilets and "education". We are in rapid decline because we have let greed and lust for mammon rule over prudence.
This is not about economic theory or formulae or politics, it is about individuals, families, and a nation.
We have SOLD OUT as a nation, believing that DEBT and SPECULATION and LEVERAGE and CALCULATIONS and SCIENCE could rule over morality and ethics.
Debt and usury and gambling do not keep children fed or loved any more than gold or empty promises.
spot on
My dear Communist, last I checked most of the 300 million American citizens still have this fundamental right to go and vote every 2-4 years, in hotly contested elections - and change the outcome.
Those elected representatives have the power to change just about anything in the country (they can even change the Constitution) at the flick of a button, literally.
When 200+ million people are voting then the outcome is inevitably an imperfect mess that everyone claims must be a manipulated outcome, but unless know a better method they are pretty much getting what they voted for.
Saddam Hoessein loved elections too !
You can have your constitution, but when people don't use it, it is off poor value
Not really - the elections in Iraq were generally not described as "free and fair". Most of the time they would not even let international observers to monitor the elections ...
you do not live in florida I assume
Your point being?
Revolution.
Communist is far from the mark; very far.
Remember those political mind traps; escape while you can.
We must wait for the collapse for sanity to return, but it is the nature of complex systems.
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Sorry! Delete duplicate posts please :-(
Simple - If you spend $10,000 dollars on your credit card have you increased your income by that much or increased your debt?
If you are not a government that can print it's own money or a banker that can steal from said government and citizens by crisis proxy - what magic makes that "real" GDP or "Product"?
Simple: of course your households income has increased by $10,000, for that month.
You've decreased future income by the monthly rates though, the sum of which can easily be $20,000 or more.
For a family this is stupid if the spending of $10K was unforced, unless that family can find some really good use for that $10,000 here and now, which investment yields far more than $20,000.
But note that the yield and cost numbers are very different for QE: for the USG it's approximately $10,300-$10,600 that has to be paid back to the Fed, once those QE bonds (now held by the Fed) mature in 3-5 years. The long-term rates were very low (around 1-2%) so QE was feasible.
So to stay with your credit card analogy: doing QE would of course be stupid if the 10 year rate would be at 10% ... (it would be stupid even with 5%)
But with the extremely flat US yield curve QE was feasible:
http://www.treasury.gov/resource-center/data-chart-center/interest-rates...
As long as the GDP grows nominally faster than the bond rates spent on QE this is a good deal, even if you ignore the undeniable fact that spending money to create more jobs and more business is one of the tasks governments get elected for ...
So gambling is good?
Government gambling is good?
Gambling with other people's money is good?
Hey, I got a deal for you! You lend me $10,000 at 0.25% and I'll go out and make 3%-5% minimum and pay you back 0.25% - unless of course I lose in Vegas at the craps tables (CDS market). If that happens you give me another $10,000 gratis.
You don't mind of I borrow $50,000 of those dollars from your kids college fund or your retirement do you? Oh good. I'm waiting for the check. In five years you will have your money - no problems - right?
You are now very confused: when a family takes out a 1-2% long-term loan to further support a viable, growing family business it's generally not called gambling ...
When easing is done for a whole country then taking out a 1-2% APR loan is called "creating jobs", "creating a business-friendly environment", "investing in the future" and "reducing unemployment".
That is what citizens elect policymakers to do: to implement policy.
But that is even beyond my original point: the silly Austrian/monetarist notion that the GDP increase is somehow 'not real'. You may disagree with easing, you might be one of those right-wing 'austerity now' politicians and businessmen who want to see everyone else suffer from unemployment while they are suffering in their country clubs, but calling it "not real" is ridiculous on its face.
you ever play monopoly ? do you feel you own the places then ? because it should feel just as real to you ...
I am not confused.
If I take out 1%-2% of money I don't have it is gambling.
Borrowing what you don't have is a form of gambling.
Usury is not productive capital, it is predatory capital.
Those who sit in country clubs pay for their drinks and memberships with predatory capital; not productive capital based upon 20% down invested in productive versus speculative enterprises.
Btw., now you are confused even within your own weird universe.
Borrowing means to get something you did not have before. If you already have it you do not borrow it - you use it.
Or you save it.
Why did you forget "save"?
If you borrow based upon 20% down of "save" you have some skin in the game.
If you borrow with 0.25% in the game with a guaranteed 4%-5% return on the borrowed money with no skin in the game this is "theft". This is "banking".
Tell me what you don't understand.
Well, you arguments are shifting again - away from QE and away from whether the uptick in GDP was real or not.
Your arguments are becoming more difficult to parse as well. A 0.25% short-term interest rate is not "skin", it's the short term rate. A bank may loan it out longer at a 4%-5% (fixed) return, but it risks future short-term rates getting higher.
Check the S&L banking crisis to see whether that practice is always as profitable as you assume it is.
But yeah, there will generally be a spread, from which banks profit - but the spread is not 3.75-4.75% as you suggest, more like 1-2%, if you check the long-term bond yield table I linked to.
Also, banks will generally not lend much if the yield curve is very flat. If there's no future growth then will the lender be able to pay back the loan? That's the catch-22 - and only a really big entity (the Fed and the USG) can break out of this paradox.
When you are fudging someone's argument you must parse it.
No parsing allowed.
My point is that debt is not good,; 1%, 2%, 3%, whatever.
Your assumption seems to be that debt is good.
If I save $100 and loan it out and expect a 5% rate of return on someone who gives me $20 as a down payment that is a fair loan with backing capital.
If I loan $100 and expect a 5% rate of return with 0$ down using someone else's $100 and $20 of "mark to nothing" accounting then speculate upon the contract - I have now participated in THEFT, GAMBLING, MALFEASANCE, LEGERDEMAIN, USURY, and IMMORAL and UNETHICAL lending!
I may as well be playing dice with Grandma's medicine money!
Where do you draw the line? Should the bank or the borrower share equal risk? Percentages? Consequences of default?
As is, there have been almost ZERO consequences of default for the most speculative (immoral) players in the game.
Do you realize that debt was a productive element of all human civilizations, going back to the stone ages? That institutionalized debt was one of the innovations that fueled the Industrial Revolution and that it was a key element of all modern economies since those times?
Yes, debt can of course be stupid and bad: if the investment does not work out. It can also be a wonderful enabler of something radically new which will pay back the debt and much more.
You need to point to examples of prosperous civilizations with no notion of debt whatsoever, if you want to continue this discussion in a constructive manner.
I start to suspect that you simply do not know what debt really is.
No debt = I club you over the head and take your Woman.
"Radically new scheme which will pay back the debt and more!..."
Ah yes, the Vegas proposition.
"Really, all I need is $5,000, it's a sure deal!"
...uhm hum....
Hey, can I borrow your Sister for half-an-hour? Really, what civilization isn't based on that? Um...not my Sister or your Sister? Yeah, like that.
Funny how we become more like Neaderthal's while we think we are "sophisticated" in lending each other money that no one has.
Again, if a family takes out a 1-2% APR 5 year loan to invest in a viable, growing family business it's called a "sound business investment", not gambling - even in the most tortured right-wing mind.
You have not addressed taking out a 1%-2% "loan" (incurring debt) for money not saved.
Borrowing money, even at 0.25%, is a form of gambling.
Now, if I am a TBTF bank and I know that I can get 4%-5% on my "gamble" and that even if the bet fails (CDS's) I will get bailed out by the "families" that are paying their bills and trying to save, then of course I bet it all balls to the wall and get 20% commission on speculative profit that turns out to be -20%.
However, if I delude myself that theft is capital formation, that "borrowing" from "government" is painless, that "loans" upon future generations will not cause wars, pestilence, and famine; then, yes then, I can believe that borrowing 1%-2% of what I don't have is "capital formation".