Good lending eventually rescues bad lending

I write a lot about the US because their success greatly reflects on Canada's success. Let's face it. They are a significant economic engine.

I came across an interesting article that claims that countries that followed the policies of deficit spending and low-interest lending were the quickest to recover from the great depression. There is some merit in this argument. When you lend to productive ventures that yield profit, you can certainly get yourself out of a sticky rut. The entire North American economy has thrived from debt. Without debt, there would be no capital to finance productive ventures. No money would be created and for an economy to expand, money must be created.

What launches a Great Depression is a mixture of two things. A downswing in an economy combined with massive consumer default. That's what happened in 1929. That's what's happening now. It's when that which I classify as discretionary lending collapses that the trouble starts. This lending includes mortgages, credit cards and consumer lines of credits. Unproductive debt in the sense that it doesn't get invested into productive ventures like a factory or a machine. It's debt for the sake of someone collecting interest while a consumer pays the debt back.

It's this unproductive debt that aggravated the current situation. That and the decline in home values that the mortgages were meant to pay for.

Deficit spending by a government can be thought of as a loan as well. When it is put in the hands of those who can generate productivity, then it is worthwhile. The article states that deficit spending in the 30s and 40s put the unemployed to work.

However, the Democrats are taking advantage of the situation to engage in reckless spending. They are putting money into pet projects rather than providing real stimulous. An example of a real stimulous would include a zero interest loan for a number of years to any business seeking expansion in the US that would eventually employ people.

I am even ok with infrastructure projects that will employ people until things get better. Those people will have work and the accompanying experience and when the economy will rebound, there will be greater access to goods and services.

In the meantime, the government can reign in on waste. Tax and spend only what it needs to guarantee the basic provisions it is meant to give under the constitution and give some assistance in the broad economy without prejudice to one industry over another.

It is now up to productive debt to rescue its unproductive cousin. And in the future, let's hope that unproductive debt will be harder to acquire.