By David Mc Williams
So we have arrived at the day when the State has to deal with the consequences of the housing binge on the balance sheet of the ordinary person. A few years ago, people who warned this day would come were dismissed as doom-mongers. Now we see what was clear all along: the real merchants of doom were those who harassed a generation of people into debt, condemning them to negative equity and unpayable mortgages. This problem has to be fixed because the economy, burdened with such huge levels of debt, cannot grow.
It’s a simple equation. If people are paying back debt, they are not spending on other things. The economy runs on the basis that, in the aggregate, my spending is your income and your spending is my income.
Therefore, if people are not spending because they are paying back debt, everyone’s income eventually falls…………………………………………
full article at source: http://www.davidmcwilliams.ie/2013/03/14/arrears-and-the-paradox-of-aggregation