No one understands. Why would Italy be a target of the "bond vigilantes"? They aren't close to defaulting on their debt, they are a $2 trillion economy. My personal opinion is that people think that being able to "afford" something = being able to make the monthly payment. Look at the US, why would we default? Even running the deficits that we do, we can easily afford the "monthly payment" on our debt...
In the developed world we have been trained that "debt is not bad". It has positive tax implications (ie mortgage/interest deductions) and it allows us to afford things that we want NOW rather than waiting until we can actually afford them...by "afford them" I mean write out check and own the asset with 0 debt. How many of us would buy a $30,000 SUV if we had to pay all cash for it? How many people do you know with $30,000 cash sitting in their checking account..yet, I see thousands of these vehicles every day. Why? People can afford the $450 a month payment, but if they had $30,000 in cash would they spend it all on a stupid car...? Probably not.
Also, think about the tax structure of this country. We can deduct interest against our income...think about that. How crazy is this idea, that if we borrow money to buy "things" we can deduct it off of the money we owe the gov't. I understand the premise in terms of a business, because it would stimulate business capital investment, and in in return create jobs somewhere. However, in terms of the public, the incentive to borrow only destabilizes the entire economy buy creating credit bubbles and false wealth.
We are trained to consume, given opportunities to consume (ie easy car loans, 5% down mortgages, credit cards), and then rewarded when we do consume (tax code). How much of this economy is consumer spending you ask? 70%. That is why we must continue to consume, that is why we are rewarded to consume, the world economy depends on it...
In the developed world we have been trained that "debt is not bad". It has positive tax implications (ie mortgage/interest deductions) and it allows us to afford things that we want NOW rather than waiting until we can actually afford them...by "afford them" I mean write out check and own the asset with 0 debt. How many of us would buy a $30,000 SUV if we had to pay all cash for it? How many people do you know with $30,000 cash sitting in their checking account..yet, I see thousands of these vehicles every day. Why? People can afford the $450 a month payment, but if they had $30,000 in cash would they spend it all on a stupid car...? Probably not.
Also, think about the tax structure of this country. We can deduct interest against our income...think about that. How crazy is this idea, that if we borrow money to buy "things" we can deduct it off of the money we owe the gov't. I understand the premise in terms of a business, because it would stimulate business capital investment, and in in return create jobs somewhere. However, in terms of the public, the incentive to borrow only destabilizes the entire economy buy creating credit bubbles and false wealth.
We are trained to consume, given opportunities to consume (ie easy car loans, 5% down mortgages, credit cards), and then rewarded when we do consume (tax code). How much of this economy is consumer spending you ask? 70%. That is why we must continue to consume, that is why we are rewarded to consume, the world economy depends on it...
