B2IshaniResearchNotebook

Pettis, Micheal. “How Does Excessive Debt Hurt an Economy? – Carnegie Endowment for …” How Does Excessive Debt Hurt An Economy?, Carnagie Endowment, 8 Feb. 2022, https://carnegieendowment.org/chinafinancialmarkets/86397. 

Direct Quote: The problem is more concerning when debt rises faster than the country’s real debt-servicing capacity. This occurs when debt boosts the demand for goods and services without directly or indirectly causing an equivalent rise in the production of goods and services. This can happen for a variety of reasons. For example, rising government debt in an economy without excess labor and capacity may fund additional consumption (through welfare payments, for instance), be poured into defense spending, or go toward nonproductive investment in wasted infrastructure (a particular problem in China); ballooning debt could also encourage speculative spikes in prices in the property sector, the stock market, or other assets as demand is boosted through the wealth effect.

Summary/My Interpretation: One of the most dangerous characteristics of the national debt is its ability to lead to asset bubbles. Specifically, the debt rises as a result of spending on social programs. This is problematic as this causes demand in the economy to stimulate without simultaneously boosting supply, leading to a large gap between the two values. Overall, this not only leads to a national debt bubble but ripples out and creates bubbles in other sectors. 

How I Plan To Use This In My Project: As a whole, this article does a good job at explaining the link chain that exists between amassing national debt and the emergence of an asset bubble in the economy. I want to use this narrative in my paper to provide readers with the necessary background knowledge of how debt can lead to a recession. 

Liberto, Daniel. “How Do Asset Bubbles Cause Recessions?” Investopedia, Investopedia, 1 Dec. 2022, https://www.investopedia.com/articles/investing/082515/how-do-asset-bubbles-cause-recessions.asp. 

Direct Quote: Asset price bubbles shoulder the blame for some of the most devastating recessions in history. The stock market bubble of the 1920s, the dot-com bubble of the 1990s, and the real estate bubble of the 2000s were asset bubbles followed by sharp economic downturns. Asset bubbles are especially devastating for individuals and businesses who invest too late, meaning shortly before the bubble bursts. In this regard, asset price bubbles bear a similarity to Ponzi or pyramid scams. The inevitable collapse of asset bubbles wipes out the net worth of investors and causes exposed businesses to fail, potentially touching off a cascade of debt deflation and financial panic that can spread to other parts of the economy, resulting in a period of higher unemployment and lower production that characterizes a recession.

Summary/My Interpretation: In recent US history, the three worst recessions were all caused by asset bubbles. Specifically as these bubbles burst they would ripple over to other areas of the economy. Ultimately, this creates a positive feedback loop that causes businesses to fail as well as debt deflation.

How I Plan To Use This in My Project: Overall, I plan to use this article as a way to demonstrate the severity of asset bubbles in the . I want to demonstrate how asset bubbles have been the underlying cause for all major recessions and implicate how if the US doesn’t deflate this bubble it will lead to another depression. 

Lubas, Lauren. “Are You Ready for the Debt and Asset Bubbles to Pop?” Gold Alliance, 7 Sept. 2022, https://goldalliance.com/blog/market-insights/are-you-ready-for-the-debt-and-asset-bubbles-to-pop/.

Direct Quote: There is no telling when government and corporate debt bubbles are going to burst, but they cannot sustain themselves much longer, and there isn’t a good way to deflate them. With corporations using that debt for stock buybacks (as discussed above), a lot of the debt isn’t doing much to help the economy. It’s actually making it worse because it’s causing a stock market bubble. . . . The stock market is booming. The Fed keeps its printing presses hot and ready to go for every stimulus bill that comes along, and the government keeps adding to the deficit. We’re in the roaring twenties, and it’s probably not going to last long. All of the bubbles that are currently inflating — some of them about to burst — are making all of the other bubbles that much more fragile. 

Summary/My Interpretation: Although the US economy is prosperous in the status quo, that success has come at a price. Specifically, as the US continues to aff to the federal deficit, they create a debt bubble that spans across the different economic sectors. This has been especially bad in the stock market as securities have taken cash out of circulation. Overall, experts believe that this bubble will one day burst, causing the US to enter a massive recession.
How I Plan To Use This In My Project: I hope to use this article in my project as a way of demonstrating how the US debt bubble has hurt the economy. The article does a good jog at explaining how the increasing US deficit has created a bubble in the stock market that threatens to send the economy into a recession. I hope to use this narrative to further demonstrate how the debt could harm middle class families by leading to another recession.

Lubas, Lauren. “Are You Ready for the Debt and Asset Bubbles to Pop?” Gold Alliance, 7 Sept. 2022, https://goldalliance.com/blog/market-insights/are-you-ready-for-the-debt-and-asset-bubbles-to-pop/. 

Direct Quote: Debt bubbles occur when there is an excessive amount of debt that cannot be sustained — meaning that it can’t be paid off. Debt bubbles are dangerous to the economy because when they pop, it means that large corporations or massive amounts of people are defaulting on their debt, sending ripple effects across the entire economy.

Summary/My Interpretation: One of the biggest threats to any economy is the existence of asset bubbles. An asset bubble occurs when consumers flock to a certain good while the good itself doesn’t appreciate in value. Similarly, a subset of asset bubbles are debt bubbles which occur when a nation can not keep up with its increasing amount of debt. Overall this is problematic because as asset bubbles pop, they have huge impacts on the economy and often will lead to a recession.
How I Plan To Use This In My Project: One impact on the middle class I hope to cover in my paper is how large sums of debt can lead an economy to a recession. Specifically, I hope to paint the narrative that in the status quo the US’ debt is leading to large asset bubbles that will continue to inflate until they eventually burst. Overall this is important because as asset bubbles pop and actors default on them, it leads to massive hits on the economy since they often span multiple industries.

Rugy, Veronique de. “How Does the US Debt Position Compare with Other Countries?” Mercatus Center, 22 Oct. 2013, https://www.mercatus.org/research/data-visualizations/how-does-us-debt-position-compare-other-countries. 

Graph:

Summary/My Interpretation: As a whole, this graph examines the debt to GDP ratio of the top 5 richest per capita nations. When looking at the graph, it is evident that the US has a debt to GDP ratio far greater than any of the other top 5 nations, with its ratio being more than double that of the next highest. 

How I Plan To Use This In My Project: When talking about the federal debt, one of the most commonly cited arguments against taking immediate action is that other nations with large sums of debt have continued to prosper economically. However, this statement fails to compare the debt to GDP ratios of the US with other nations of a similar wealth level. At the point where the US’ is so much higher than other nations, one can’t say that what happens in those nations will happen to the US.