Cities and counties are in debt.
States are in debt.
The U.S. Government is in debt.
What did all this debt do? It borrowed money from today to pay for yesterday’s extra expenses. What extra expenses you might ask? Those extras over and above current income. You see that is what debt does. Debt paid for something that can’t be afforded at the time with the theory that the debt will be repaid slowly over time from tomorrow’s income. Debt = credit balances … and with continued borrowing … credit balances continue to grow.
There’s no mystery … debt is a result of deficit spending … nationally, locally, and by individuals alike.
But, what happens when current expenses, plus current debt payments, exceeds current income? Default and bankruptcy. Greece, Portugal, Italy, and Spain are trying to avoid uncontrollable default by structuring and controlling it like Ireland did. Many cities in the U.S. are struggling with this issue as are many people.
As individuals, I found the strategies described in “All Your Worth” to be very helpful for those clients seeking a better way to manage their monthly expenses.
Takeaway: No matter what level, national, state, local or personal, paying down debt slows down the economy because those dollars used to pay down debt balances means those dollars do not go toward’s today’s consumption; those dollars go towards paying off yesterday’s consumption. Thus, this affects all of the tomorrow’s until debt is gone.