The most important lesson to be drawn from the history of debt is this: It's not the absolute size of your borrowings that matters. It's not even the relative size in relation to your income. The crux is whether the interest payments you have to make are more or less than you can afford to pay. And that, in turn, is a function of whether or not the rate can move, whether or not your income can change and whether or not inflation can help you or hurt you. On this basis, both subprime American mortgage-holders and a distinctly subprime administration may find the months ahead more painful than they anticipated.
Wow! Read the first three lines again. The advice is to perpetually re-finance debt to adjust cash flow. Brilliant. That way one never pays off the debt, just juggles it around. From the NYT, in an article denouncing debt, no less!
Edit July 27, 2006: Is there any wonder that the USA is headed towards bankruptcy? So claims an article from the Federal Reserve Bank of St. Louis Review, July/August 2006.
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