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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

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  • Tue, Apr 20, 2010 - 03:37am

    #65
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

[quote=rhare]

Since I’m the only other person in this scenario, you will pay me for my labor, then I give you back the money you gave me as payment toward the loan and interest.  This goes round-n-round until the loan is paid off and this represents the extra labor I have put in as interest.

[/quote]

[quote=Thomas Hedin]

If that is true, then why has the debt constantly grown for the last 250 years and now has grown to 59 trillion?  It clearly does not work that way.  Its impossible to borrow ourselves out of debt.

[/quote]

The reason is simple – the value of labor is limited by the productive capacity of the economy, while the capacity to create new debt is unlimited in our debt-based monetary system. This is why aggredate demand = (GDP + the change in debt) and why we have massive asset price inflation which creates bubbles.