In the second half of 2001, American politicians urged consumers and businesses to go on a spending spree as an act of patriotism. This is bad economics, and a lousy form of patriotism as well. A recovery purchased at the expense of financial security can lead to disaster. The usual pattern in a recession is that individuals and businesses pull back on spending and borrowing. Superfluous investment projects are abandoned, loans are called in, and belts are tightened all around. This leads to accumulated savings and lower interest rates, which work together as a solid foundation for economic growth. That … Continue reading Debt Disaster