What happens if consumer debt > M1 money supply?

Quote from dividend:


For example if an economy has $100,000 and there is $500,000 in debt, then it is impossible to pay off without the money supply increasing to $500,000.... Is this correct?
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No. Not at all. What you need is $500,000 worth of economic growth. GDP shouldn't be flat - it should grow over time. That growth is not intrinsic to the money supply. It's real income. That real income is what pays the debt (which, you should not forget, is asset on someone's book).

If, instead, debt is entirely shouldered by money supply increase, you get inflation - not a desirable outcome. Successful monetary policy should counter such a trend.
 
I think what happens when consumer debt eclipses money supply is, they celebrate by offering you a new card, lower late fees. But that's just a guess.:D
 
Quote from sjfan:

No. Not at all. What you need is $500,000 worth of economic growth. GDP shouldn't be flat - it should grow over time. That growth is not intrinsic to the money supply. It's real income. That real income is what pays the debt (which, you should not forget, is asset on someone's book).

If, instead, debt is entirely shouldered by money supply increase, you get inflation - not a desirable outcome. Successful monetary policy should counter such a trend.
More...

currently, it take $4 of debt to produce $1 of GDP....I know of no economic system that can sustain that forever

If I can service the debt and not default, I can live a long time just fine....but if bankers panic and pull credit away, I'm in a jam....
 
Quote from daddyeaux:

currently, it take $4 of debt to produce $1 of GDP....I know of no economic system that can sustain that forever
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I would very much like to see where you got that figure from - I'm not saying that it's not true, but it seems like a very certain answer to a difficult question. Moreover, whereas the statement "there's $4 of debt per $1 of GDP" is a simple accounting ratio, "... to produce..." is a casuation statement. I'm not so sure that such a statement can reasonably be made.
 
Throughout the 1970s, for every dollar of increase in productive GDP—which we here call real GDP—there was a $4.25 increase in debt; throughout the 1990s, for every dollar of increase in real GDP, there was a $13.90 increase in debt. However, in the 2001-03 period, when real GDP, even in its statistically massaged form, stagnated while debt grew hyperbolically, each dollar of increment in real GDP required a $63.51 increase in debt. The representation goes "off the charts": It defines a singularity, where the system breaks down.

This signifies something else: The U.S. economy's current indebtedness can never be paid off out of the real productive portion of the economy.

Source: Executive Intelligence Review, 2004
 
Quote from daddyeaux:

Throughout the 1970s, for every dollar of increase in productive GDP—which we here call real GDP—there was a $4.25 increase in debt; throughout the 1990s, for every dollar of increase in real GDP, there was a $13.90 increase in debt. However, in the 2001-03 period, when real GDP, even in its statistically massaged form, stagnated while debt grew hyperbolically, each dollar of increment in real GDP required a $63.51 increase in debt. The representation goes "off the charts": It defines a singularity, where the system breaks down.
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... you managed to figure out causation by dividing change in level (debt) by change in flow (gdp)? You managed to figure out causation? We are officially done.
 
i think the point is that debt service will come from money creation and not productivity

something not lost on currency and gold/silver players
 
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