Agreed. The US is primarily consumption driven economy. This could lead to behavioral conditioning that could affect future growth (e.g. depression era, silent generation).

https://blog.dol.gov/2016/11/03/spending-habits-generation

https://medium.com/generations-of-spending/meager-spending-a...

Those of the silent generation are what can be most accurately described as frugal spendors.

Again, this tendency is rooted in their surroundings as they grew and developed within the society around them that was facing hard and desperate times.

Your comment is full of assertions, but not evidence or explanation.

My own assertions:

(1) GDP measures production. If debtors are incentived to produce more, GDP rises.

(2) The spending of debtors doesn't fall. It is just directed toward different sectors (education and financial products instead of housing, etc.).

(3) Every dollar lost by a debtor is a dollar earned by a creditor. These dollars don't disappear from the system. And even if creditors tend to churn money less than debtors, inflation targeting by the Fed should fully counter any changes in the aggregate velocity of money.

Now, it's possible you're right and I'm wrong. But I think it takes a much more sophisticated (and justified) argument than what you are asserting.

I agree that a sophisticated argument would take longer.

Regarding (3): The money does not disappear, but what is done with it? Already excess money in the hands of the 1% is just going into real estate, the stock market and stupid VC companies. All this is not particularly good for the real economy.

FYI, this is a fallacy. Money cannot "go into" an asset, in aggregate. Every buyer is always matched with a seller. For example, I have heard people say that in the crash of 2008 there was more selling of stock than buying of stock. But that would have been impossible. Each time a dollar was collected from selling a stock, there was a dollar spent buying that stock. They exactly equal. Money cannot go into assets, in aggregate.

This is of course different from personal experience, where exchanges are essentially one-sided, not two-sided. An individual can exchange money for property. But a closed economy cannot.

True. But that only describe the private actors in an economy. In the same way that money come from the state it can disappear there. The state can decide that "running deficits" is bad and start to destroy money running a surplus, frequently, when what you need is the opposite, like currently in the Euro-zone.

Running a budget surplus doesn't mean that money is destroyed. Also, the claim that the Euro-zone needs deficits is a highly contentious point, and not at all obvious or a consensus. Asserting it rather than arguing it does a disservice to the subtleties.

"Running a budget surplus doesn't mean that money is destroyed."

What it means, then?

It means the government takes in more money than it spends.

Depending on the policy of the Fed (or other issuer of fiat currency), the money supply may be increasing or decreasing at the same time.

Sorry, you are right. I forgot that the central bank in the States is not part of 'the government'.

The 'other issue of fiat currency' sounds mysterious.

Banks create money when they lend, and destroy it when the loan is paid. It's one-sided.

(Of course, a well functioning government will compensate for that in monetary policy. The US gov just stopped being capable of that by around 2008, it is progressing on recovering some control, but still has very little.)

Again, a blank assertion that is in truth contentious. I apologize for my tone, but it frustrates me when armchair economists comment on the internet and phrase opinions as facts. It is not at all an established, consensus fact that the US Government lost control of monetary policy after 2008. In fact, quantitative easing and interest on reserves are two policy levers that central banks continued to pull after hitting the zero bound. Short-term interest rates are not the only tool, nor the only framing, of monetary policy.

Well, I'm not taking that point, sorry.

Quantitative easing was tried, and didn't work. There was nobody to lend money to, so velocity felt in proportion to the new money printed and the whole thing turned into just a hidden bank subside. It may work if coupled with the correct fiscal policy (AKA a temporary universal income), but nobody on the US government has the power to do that.

Interest on reserves is a fringe monetary instrument that is getting support from economists out of desperation. The leading theory is that it doesn't work at all, the fringe theory that everybody is hoping to be right is that it can work if the government restricts the use of paper money. AFAIK, nobody has any idea on what unexpected effects can come from doing it for any long period.

Interest rates are not the only tool, but the US government has already spent all of the orthodox tools. In fact, I do think the lest one to stop working was quantitative easing.

I think (3) is a very important and debatable point.

Important because, as you mentioned, there is a very large difference in marginal propensity to consume between 'hand-to-mouth' consumers and savers - this affects the velocity of money and GDP. Debatable because at the zero-lower bound, how much effect the Fed really have is very much in question (see: excess reserves at https://goo.gl/NQG2O5).

I personally would disagree - money funneled to creditors rather than in the hands of consumers is more harmful to the economy than the reverse, but is that money passed to capitalists (low consumption) or used for business investment (high investment)? That being said, consumption is about 70% of GDP.

> (1) GDP measures production. If debtors are incentived to produce more, GDP rises.

Production is dependent on demand of consumables in the U.S.

2 & 3 are the similar (the same?) point. The poorer one is, or the earlier in life they are (students) the greater % of their income is spent on consumables. I don't think money sloshing around financial services has as direct an impact on the things that most impact production.

I think he has confused the US economy with its controlling parties.