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Transferring spending power....



April 22, 2010 – Comments (4)

This post by Caroline Baum got me going.  She views that people not paying their mortgage and then having more money to spend in the economy a net zero because someone else is not getting paid.

I disagree about how that works, or at least shows up in the economy.  Money that is spent versus invested shows up very differently.  If you don't have enough resources to make ends meet and then you stop paying your mortgage, much of what you are not spending on the mortgage can show up in consumer spending.

If you have money to invest, you investment money is sitting there basically trying to extract resources from others.  Right now there is too much money sitting there trying to extract resources from those that don't have much and each other.  It seems to me that money that is going into the hand of people who do not have the resources to save circulates in the economy far more then for people who do have the resources to save.  Further, those that have the resources to save are far more likely to spending money on travel to other countries, which simply takes the money out of the country.

4 Comments – Post Your Own

#1) On April 22, 2010 at 10:24 AM, vriguy (75.98) wrote:

Given how much Walmart sources from China, seems like all the "spent" money will go abroad at least as quickly as the money spent on foreign travel. If you fly a US airline, and stay at the Hilton, a big chunk of the foreign travel money comes back here. It is not as cut and dried as you say - as I'm sure you realize. It is a topsy turvy world where living within one's means, saving the excess, and investing it is considered less desirable when compared to its opposite.

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#2) On April 23, 2010 at 8:29 PM, dwot (29.67) wrote:

Good points vriquy.  I still think vacationing is a faster way for a country's money to leave it.

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#3) On April 24, 2010 at 12:15 PM, ikkyu2 (98.57) wrote:

Money paid into a mortgage goes onto a bank's balance sheet; this money gets lent out, placed into other banks, and lent out again, expanding the money supply by the inverse ratio of the reserve requirement.  The money spent on goods does not do this, especialy if it is offshored.

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#4) On April 24, 2010 at 12:56 PM, AirForceFool (99.90) wrote:

Regardless of where the money is going, and how it's spent (better if spent locally of course), we can't spend our way out of this mess... no question that massive government spending has made the bathtub more shallow (which isn't necssarily bad, and may even be good), but it's done it by making the bathtub a lot longer. I think we're looking at taking years and years to fix what could have been prevented by not spending money we didn't have. The money I have in the bank not only gets loaned out to others (thus stimulating the economy as ikkyu2 points out) but also establishes a foundation... one that helps keep the banks healthy, but also keeps the taxpayers from funding my medical bills etc... every dollar that I save to provide for myself in retirement is a savings to the taxpayers... imagine if the one in six Americans collecting some form of Social Security didn't need it...

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