Long term bond rates and the state of the economy | Page 3 | General financial discussion | Discussion forum

Jack Manning said

Jon, the problem is not spending too much or too little money for the economy but it is that people are going deeper and deeper into debt which costs more interest and in the case of housing, real estate, autos etc. inflation increasing expenses at much more than the C.P.I the government states.

For examples, gas prices, water rates, electricity rates, heating costs, insurance, property taxes etc. plus H.S.T and other taxes that make many living expenses cost much more.

Future spending decreases when our incomes does not rise in line with inflation and taxes plus all the extra debt and interest costs, fees that piles up pulls future spending to now in the present and gives a much slower economy in the future when most people are just trying to survive by paying off their debts.

Jack, debt level/saving level are directly correlated with consumption/spending level; when we spend more, we take on more debt and vise versa. Moreover, there are no evidence that say we take on more debt lately as all statistic in developed country say the household saving rate are rising slowly since the financial crisis.

You also mention that inflation are not catching up with rise in salaries. Economically speaking, this is just a short term phenomenon that will fix itself. (but a "short run" in economy can take a few decades....) However, a more likely situation to explain the of slow rise in salaries is because huge amount of jobs have been replaced by small amount of jobs that are generally tech base or being outsourced into places like India or Philippines. As a result, our economy are facing a very serous problem with structural unemployment or structural "underemployment" ; there are people that look for jobs and there are jobs that need to be fill, but the unemployed doesn't have the skills to fill the job or can only live on wages that doesn't catch up with inflation. The only way to go around it is by education.

Jack Manning said

Jon, you misunderstood. I said when inflation and taxes are greater than wage, salary increases then people usually keep their spending pattern and use debt to bridge the difference.

I see, I get what you meant and you are right. But I still don't think this is happening right now as ratchet effect is only a short term effect while statistic have shown that consumption have steadily reduced over the last 6 years.