Tobold's Blog
Friday, April 27, 2012
Debt and economic growth

The many-headed hydra of the European (and world-wide) debt crisis has resurfaced, threatening Spain this time. And in France a socialist is likely to win the presidential election in a week, promising to overthrow the previous governments promises of austerity for the sake of "growth". And I don't understand. Not the politics of it, I understand those very well. But the economics of calculating GDP and GDP growth.

As this is extremely complicated to calculate for a whole nation, let me explain my problem with a much smaller example, a single person: Imagine a guy who earns €2,000 per month (which corresponds to the median household income of for example the UK). If he spends all of this (Case A), he contributes €2,000 per month to GDP, because he somewhere causes the sales of €2,000 of goods and services. If for some reason the guy finds that €2,000 worth of goods and services isn't enough for him, he can borrow money to increase his spending. So let's say in Case B in the next year he spends €2,200 per month, on the same €2,000 income, by racking up €200 of debt per month. Although he still earns the same, his personal contribution to the GDP goes up by 10%. If everybody did the same, the GDP would go up by 10%.

Now at the start of the third year our guy has received some threatening letters from his credit card company about the debt he is accumulating, and decides to act. He still earns €2,000 per month, but this year (Case C) he only spends €1,800 of it on goods of services, and uses the remaining €200 to pay back his debt. His contribution to GDP is 10% lower than in case A, and nearly 20% lower than in case B. Horror! A recession!

But isn't the recorded GDP growth from case A to case B, and the subsequent fall from case B to case C all just an illusion? In reality our guy earned exactly the same in each year. He caused an "illusionary" economic growth by spending more than he earned, balanced by accumulating debt. The moment he decided to pay back that debt, he causes an "illusionary" recession. "Illusionary" is maybe not the right term, because certainly somebody else earned more money from case B. But is that additional spending really "economic growth" if it is based on borrowed money and not sustainable? Shouldn't there be an asterisk next to the GDP figures, with an explanation that of the total GDP x% was paid for with borrowed money?

If our first economic priority was to increase the GDP figure, we could easily achieve that by all spending much more money than we earn, with money borrowed from China (because money borrowed locally increases the spending of borrower by as much as it decreases that of the lender). We could have 100% economic growth by simply all spending twice of what we earn. But to me it appears rather obvious that this so-called economic growth would be just a Fata Morgana, because it clearly isn't sustainable.

To me the battle-cry of "economic growth instead of austerity" is a false one, because it translates into "more debt instead of paying back debt". The Keynesian economics of "government should pay people to dig holes in the ground and then fill them up.", paid for with foreign debt, clearly results in "economic growth" on paper. But as nothing useful was produced, it only leaves a legacy of debt, which an implied future reduction of GDP the day this debt is paid back. Economic growth is good, but only if it is the result of an increase in productivity, of innovation, of people working harder. Economic growth paid for with borrowed money is just a trap.

I'm not an economic, but I'm prettig sure the key is in the fact that the loaned money would not be spend (and respend) otherwise. Because it would have been caching dust in someones bank.
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Austerity in the form of breaking obligations and cutting the basics which drive growth: research, education, and infrastructure, all false savings. If you break your obligations to citizens (as they want to do with social security in the US), you're defaulting on one debt to pay back enough. If you cut the three basics of growth, then you're 'saving' money now, but at a much greater opportunity cost.

Perhaps he should ask for a raise.
There are two types of spending. One to increases earning, and one that is just pure life-support consumption (eg: food, shelter, etc). If the guy was, say a self-employed graphic designer, and that extra €200 was used to buy new design software, then typically we'd expect more output this year. Ideally, he'd make €200+ extra in money from clients because he can do more faster. It's real growth if that extra €200+ comes from external sources (imports) or is an actual durable good.

But you're right in terms of extremes; it is possible to fake growth by taking on debt and spending it in an enclosed ecosystem that produces nothing. It's also why people still track manufacturing indexes in this day and age with so much GDP in services. You need that extra data to make sure the growth values aren't being totally fudged.
You can't easily draw comparisons between governmental and household economies like that. They behave much differently.

A country's GDP is not flat, it varies cyclically. During the low points (which we're currently in) people suffer. The idea behind Keynsian theory is that the government should enact debt-financed stimulus programs to reduce the impact of the low cycles, then pay back the debt during the high cycles. (Too much growth is also problematic, as it can cause inflation.)

Our current crisis is caused by governments spending prolifically and wracking up large debts during the expansionistic period of the mid 2000s. Now we're in a recessionary period, and governments are too burdened by debt to respond effectively.

Austerity is not the answer. Even in their current financial state, governments can still borrow money cheaper than anyone else. IMO, the proper course of action is to first get out of the recession, and then worry about the debt.

(Note: I'm in the US, so my perspective comes from there.)
I'm sure economists would flip over the logic but you very clearly pointed out the root cause that everyone ignores. We have a system that focuses on the short term instead of the long term. All public companies, most governments are focused on the next quarterly reports or the next relevant political cycle. So when they get that extra GDP at the expense of future GDP it's ok till the future arrives. Hopefully it'll be someone elses problem then.

I do have hope that in this recession that executives and politicians will be forced to deal with problems they created. Maybe this will help reduce the kick the can down the road mentality.
Well, how about if a business (or an individual, too, but my example works better for a business) gets a business loan, and is able to grow their business at a rate faster than the interest rate of the loan.
I'm fairly certain that foreign loans are counted as an "import" and are subtracted from a nation's GDP.

- $2mil import from china
+ $2mil internal govt spending
$0 change in your GDP

(until the interest charges are paid back, then you actually see a loss in GDP)
Hm, no edit button.

Also please keep in mind that an accurate economic analysis is not conducted using a single measure.

There are many other measurements and ratios derived from them that are used.

If we use your example and assume the debt is domestic, then a Debt-to-GDP ratio over the time period would highlight the changes in spending more/less on credit.

I believe the GDP is often quoted as the be all, end all statistic because most people do not care to educate themselves on the intricacies of economics.
(caveat: I'm an econoob, so don't trust me)

Linkety link:

BTW the scenario you describe is exactly what is happening. Debt -> more money circulating -> more demand -> more production GDP -> profits -> optimism -> easier to get credit -> more debt. Rinse and repeat.
This, in theory, would not be automatically bad: if the debt goes to finance "real" growth (i.e. industrial production), then the money does not vanish into thin air, but turns in some solid assets (of course, their value can crash). What makes things worse is that debt has been used to finance speculation, which is not "solid assets", but paper which people believed they could sell for a higher price later.
This created a system with feedback, where the value of the signal becomes smaller and smaller compared to the feedback, which makes for a system which is more unstable, since a drop in feedback will have a % impact on the overall total big enough to keep the fall going.
There is a difference between digging a hole only to fill it up again, and a works project that has real value, like keeping a bridge from falling down.

Just like there is a difference between pouring waaaay too much investment into mortgage backed securities vs the .com boom of the 90s. One contributed to the destruction of a 158 year old financial firm, and the other created Google.

Borrowing without creating any value is a waste. Just like cutting a social program which creates value (i.e. more educated citizens) is harmful.

The solution isn't spending or cutting. Its supporting investment that creates value, and cutting programs which don't.

Now if we could only agree on what "value" is. :)
I think you are right for it's obvious that the only alternative to a crippling austerity that further depresses the economy making it impossible to pay the debt in the medium term is to borrow even more money that the Chinese will eagerly lend.


So this is Keynesian economics, eh? Let me go out on a limb here: you never read the general theory, right?

The overall benefit to society depends on what exactly that loaned money is spent. If individuals spend it on increasing consumption, and governments on digging holes, then it is a loss. If individuals and governments would use the money they borrowed to invest in production, innovation, and infrastructure, it is possible that the payback on those projects exceeds the cost of the loan, and the debt was a good idea.

Unfortunately governments don't have a good track record on investing money at a good return on investment, and the money lent to individuals in the form of credit card debt and sub-prime mortgages went mostly into consumption, not investment. Is anybody suggesting that the debt of Greece or Spain was money spent wisely to the benefit of the country at a great return of investment?
Based on your example you have 2 premises that are not equivalent to GDP calculation:

First is that Spending $200 over your earnings isn't straight growth into the GDP. You have to borrow that. That is a service and a good. Essentually, you borrowed $200, for the bank to probably charge you $40 or so in interest, if they get their way.

Therefore spending $2,200, is not a 10% growth, it's only a ($40 (probable goods increase)/$2000 (Expected Base) = 2% growth. That growth isn't realized until year 2 when said borrowee starts paying interest. So long as neither default, until someone starts paying interest or the bank loses in asset value, no change occurs to the Macro Economics we are looking at here in a small fashion.

The bank (so long as its same country) most have enough funds to cover your loan. Therefore the loan amount is a wash with your debt for the purpose of this calculation.

Point is, especially when understanding govt involvment in the GDP, interest is a good. The loan or debt is not recorded in the base. So long as the amount is covered by a insurer. Hence, the U.S.'s standpoint in having any GDP considering the debt of the country.

Now as for understanding the extra $200 that borrower put into the economy is not an increase to GDP. That $200 came from a bank. That bank is also a company. Company A might have sold $200 in product. But Company B (bank) had to loan it. It's a wash, until Company B gets interest next year. Then the GDP increases, by 2% (assumed $40).

Now start lending to and from internation entities and balance your import and export and you start to get major fluxuation in the calculation.

If company B is foreign, only the *$200 gets recorded in the GDP, while the -$200 loan turns up in the GDP of another country.
I remember 2 years ago when the USA gov sent stimulus checks to just about everyone and asked people to use the money to buy something instead of save it or pay off debt.

The entirety of the USA economic growth is based on spending beyond ones means. If credit cards were locked today and people could only use cash and collateral loans the GDP of the USA would crash.

If a family overspends and ends up with $150,000 of debt they write off in bankruptcy – the business they purchased from has already been paid and have reinvested that money.

Let’s say you buy $50,000 dollars’ worth of food for a party with a credit card and never pay it back, you credit is shot, but the grocery store still gets to keep the $50,000 of real money. In the end (probably at least 1 year down the road) the credit card company will write off that $50,000. But by that that time the grocery store probably turned that $50,000 you paid them into $70,000. Add $20,000 to the economy that never should have been added.

That is $50,000 spent into economy by borrower, $50,000 written off by lender, and $20,000 added by retailer. The $20,000 added by the retailer should have gone back to the credit card company and they should have written off $30,000; $30,000 removed from economy. But it doesn’t work that way. Instead you end up with a borrower with a full belly and bad credit, a lender that is neutral using the write-off to balance out a gain, and the retailer happy they made a sale.

In Short: Tobold is right way of thinking is the basis of the problem, if not explictly the problem itself. If using credit to overspend is the norm, than spending without ones means is a recession.
Two things; if he is borrowing domestically, then that amount is a wash as far as GDP goes. That's why it is gross domestic product -- borrowing doesn't count, just production.

Second, even if he didn't borrow the money, it wouldn't be "caching dust in someones bank". Banks lose money when they hold on to capital, and they aren't in the habit of losing money. Someone would borrow the money, which is why interest levels vary. It's classic supply and demand -- when lots of people want to borrow (with equal levels of risk) then interest rates are up. When few people want to borrow (like now) then the rates go down.
Economic growth is indeed a trap, since it essentially only comes from measured economic activity, much of which is debt financed. When you consider that all debt is essentially pre-spent future earnings, growth is simply a measure of future spending compared to present; like a forward marker moved to the present.

If you remove technological innovation (which must be in real terms rather than monetary) and population growth (which is merely horizontal expansion of measured present production), you are left with the stark reality that growth is zero. This means that the expectation of continual growth (outside of the aforementioned tech and pop growth) is an illusion -- chasing future earnings.

So, the only way to really manage growth is to manage debt. This is cyclical like everything else. Too much debt payment robs the ability to make real purchases in the now, and you fall below the rate required for growth. Too little debt payment merely defers the problem, impacting future growth.
For crying out loud, people, not one commenter (our esteemed blogger included) bothered to take the 10 seconds to read the Wikipedia article on Keynesian economics?

You are all missing the central part of Keynesian economics: the liquidity trap.

When the economy turns south and investments start losing money, investors do the rational thing, which is to stop investing and hold their money in cash until the downturn is over. Except, since investors all stop investing, the economy gets worse not better. And so investors continue holding cash and not investing. And so the economy continues downward.

You can see this right now in the U.S., where we have over $2 trillion in investment capital sitting idle (easily a record amount). Yet, investment is low and unemployment is high.

This is where the government can step in to fill the investment gap. Despite what anti-government types will tell you, there is no difference between government investment and private investment (from an economic standpoint). The economy doesn't care where the money comes from. So the government keeps investment levels up until the economy turns around and private investors return to investing.

This is supposed to be paid back on the upswings. However, in the previous decade, despite favorable economic conditions, several nations decided to drive debt up even higher anyway.

The result was, when the next downturn came, rather than stable budgets and low debt, we already had large deficits and massive debt. This made it very difficult to increase spending even further to cover the investment gap.

I should point out, Japan has a national debt of over 200% of their GDP, and pays the lowest rates in the world on it. Debt of over 100% of GDP is not necessarily crushing, assuming your economy is such that you can keep up with payments. Greece, obviously, could not, due to economic conditions, high unemployment, early retirement ages, and a massive tax evasion problem.

Economics in general is too complex to declare one model as "correct," but since World War II the Keynesian model has shown to be the most accurate we have.

Most of which is internal, help in low-interest accounts of the Japanese post office. While Greek debt for example was mostly owed to other countries.

And sorry, there is no consensus among neither economists nor politicians that the Keynesian model is "right" or more accurate than the others.

Ditto. It completely failed to predict this collapse, and in fact predicted that things like the Bush tax cuts would have warded it off in America.
"and in fact predicted that things like the Bush tax cuts would have warded it off in America."


I implore you both to read the Wikipedia article on Keynesian economics, which you clearly haven't done.

The Bush tax cuts are an example of supply side economics, the most popular contrasting theory to Keynesian economics.

And yes, supply side economics has been shown to be a failure, as you demonstrated, even if you don't know what you're talking about.

Also, nice work ignoring the part where I clearly said no one model can be declared "correct." You should both have jobs at Fox News in no time.


Right, because I disagree with you I must either be ignorant or stupid, right?

Tax cuts are a key point of actual Keynesian economics (as opposed to tax-and-spend economics masquerading as Keynesian economics.) Bush cut taxes at the start of the 2003 recession -- just like Keynesian economics said he should, to return capital to the economy and encourage liquidity. Note that he didn't cut taxes and the budget -- he cut taxes by incuring debt to the state, exactly in line with Keynesian economics.

If you want to school us, you might try doing it with actual knowledge, instead of trying to put fancy names on plain old tax-and-spend policies.
Also, for the record, I am very much a follower of the Austrian school on economics, because it works, but that by no means indicates that I don't understand Keynesian theory.

In my experience Austrian followers have no trouble understanding Keynesian economics, even though we think it is wrong. However, the only people following Keynesian economics are ones who barely understand that, much less other schools of thought. (Sort of like evangelical non-denominational Christians. They don't even understand their own religion, much less others.)
I don't think you are stupid, I just don't think you are willing to try and understand Keynesian economic theory. If you would read the Wikipedia article on it, I think you would feel pretty silly.

Keynesian = increase spending during a downturn

supply side = cut taxes during a downturn

Keynesian specifically argues that because of the liquidity trap, decreasing taxes will have no effect in a downturn (investors will have more capital, but sill still refuse to invest).
@bent_oben: Are you thinking of ten years ago? The Obama administration specifically avoided sending out checks because they wanted there to be a little more money in paychecks, unnoticed, that would pay off debts rather than a short-term spending spree. It worked, in that no one noticed that he'd cut taxes, which wasn't so great for him politically.
Keynesian = increase spending during a downturn

supply side = cut taxes during a downturn

Sorry, but this is wrong. It may pain you to think that Keynesian economics can overlap in areas with supply-side, but it does. Keynesian theory doesn't care where the liquidity comes from, as long as it is increased in downturns and drawn down in expansions. It's why JFK cut taxes -- he sure as hell wasn't a supply-sider, because supply-side economics thought wasn't even formed until the 70s.
Even Keynes would have agreed that deficit spending is only a temporary measure. You can't keep up the economy endlessly based on debt. Which is exactly what politicians are trying today.
Since before Roman wealth was spent on "bread and circuses" [ Wiki: creation of public approval, not through exemplary or excellent public service or public policy, but through diversion, distraction, and/or the mere satisfaction of the immediate, shallow requirements of a populace ] politicians are adept at spending public funds to further their careers. BTW, I guess I would hope all the "spend for the public good" politicians are being selfish rather than stupid since the latter is incurable and harder to reason with.

It depends on how the money is spent. The US being a net borrower during the 19th century was a good thing as the money was invested in railroads, infrastructure and industrialization. Politicians spending money on hiring more government workers has little (negative?) value.

My impression is that GDP (I am old enough to remember when the US quoted GNP) statistics are more problematic in 21st century service economies than measuring steel and locomotives in the 19th century. If everyone simply hired the next name in the phone book to consult with them for $50,000 wouldn't that double the GDP? The example may be wrong but the problem is how do economic statistics value the outputs of a service economy other than by inputs?
As Tobold points out, Keynes wanted deficits to be a temporary stimulant to "jumpstart" a sluggish economy. What happens today is a very perverse form of keynesianism that is not actually in line with Keynes. During the upturn, the deficits are supposed to stop and be paid off. Instead, the politicians' lack of restraint keeps their foot on the pedal because they want votes.

I think our argument has devolved into debating definitions. Is what I'm talking about considered Keynesian economics or not? I think it is, but what difference does it make to the viability of the argument?


This, I absolutely agree with. And other economists have argued that "temporary" increases in government spending tend to result in permanent or even expanding additions to government (which is fair, and is one of the many reasons I favor infrastructure spending in these situations).

However, I'm only trying to say that what to do now is less clear cut. Normally, this would be a situation which called for increased spending/deficits. However, after a decade of unecessary deficits, it is hard to convince people we should increase those deficits even further.

Should we go ahead and do the extra spending, promising to be more responsible this time when the economy turns around? Or should we bite the bullet and say we can't afford it, hoping the economy turns around on its own?

There's some merit to both the arguments, however many countries are looking and Britain's example. They made the massive cuts you're talking about in 2010, with economists warning them not to cut so much so quickly. The result was an almost immediate double-dip recession there. Countries like France see that and don't want to make those same cuts.

I should point out, this is a big reason why in nearly every country, when they discuss "cuts" they are really talking about a reduction of the increase in spending starting 2+ years from now. A government employee who loses his job is just as unemployed as someone laid off from the private sector.
Debt always matters. But it impacts different entities in different ways. For a currency user (like a household, business, state government, or European nation) debt always involves borrowing dollars from someone else and eventually having to repay debt. In order to service this debt you must obtain dollars to meet the repayments over time. Therefore, these entities are always constrained in their ability to pay back debt. They have a real solvency constraint.

This is not the situation for an autonomous currency issuer. The USA for instance, has no constraint in its ability to issue US Dollars. It doesn’t call China to borrow money first. It doesn’t check tax receipts. The USA, with its printing press, just adds dollars to the economy when it wants. It can help to think of the USA like a scorekeeper at a football game. They don’t have a pile of points sitting around waiting to use. They just credit and debit the scoreboard when they want. But they never take points from one team in order to give them to another team. That’s just not how autonomous fiat currency systems work.

The USA doesn’t repay their debt. There’s simply no such thing. That’s why old US folks never say “I wish Uncle Sam would pay off the national debt so I could get rid of these damn savings bonds!”. If you think about that for a second, you quickly realize that grandma’s savings is the government’s debt. The governments deficit is the non-government’s surplus. This is an accounting identity. If the US government creates no money then there are no dollars for the private sector to use. If the government spends $100 into the economy then the government has a $100 deficit and the non-government has a $100 surplus (excuse the simplicity of the example here).

Remember, as the currency issuer, the US government has to make US Dollars available before anyone can use them. It doesn’t borrow first to then be able to issue US Dollars. In fact, if the US government made no dollars available to currency users then there would be no dollars in existence to buy US government bonds in the first place.

The mainstream has the entire concept backwards. Most people are comparing a household to an autonomous currency issuer when the fact is they are apples and oranges.

- Cullen Roche, MMR

This is disingenuous to the point of dishonesty. See: Zimbabwe.
Just wanted to point out that the premise of the article is false (since GDP doesn't measure domestic consumption but production). Furthermore, you can't do macroeconomics by microeconomics analogies (the fallacy of composition and all that). Sure, you need micro to explain macro, but macro is not just micro.

Simply stated, the problem is that the crisis countries produce less than they did or they could. Debt is an important part of the story but Eurocrisis is not "they just borrowed lots of money and now they should pay back, austerity ist wunderbar", specially when Germany and the core countries is one of the main obstacles to repaying debt and the rebalancing of the Eurozone (debtors -in public+private terms- need to have exports > imports to do that, and creditors need to have imports > exports; guess what's the German stance on that!).

PS: borrowing is not a sufficient condition for GDP growth, check out the accounting identities on international trade and the current account (and also some supply and demand). "We could have 100% economic growth by simply all spending twice of what we earn" is erroneous.
The recent bursting of the housing/construction bubble is a prime example of what you are talking about. All of that 'growth' was paid for by borrowing - by increasing debt. Once the debt became unsustainable, the bubble burst and growth slowed to a halt.

The problem is how to continue growth at an aggressive rate - which the politicians love for the votes and the chance to get richer, and the rich love because of the chance to get richer. As you pointed out, it's impossible, today, without another bubble fueled on debt. And, unfortunately, all of the recent bubbles - the dot com, the housing, the biomed - have been built on lies, deception, and tons of debt.

How can economies, or anything, continue to grow, year after year, without end? There has to be a ceiling, and I think we in the West reached it quite a few years ago and have been living on false hopes ever since. Not only have we reached it, but competition from China, India, and other countries will steadily work to slow our growth as our industries give in and export work overseas.

Eventually their growth will slow too as markets become completely saturated.
Austerity only works in the good times and only in the very short term. Trying to impose it in a recession is suicidal politics.
After reading all these posts, I have to say there is alot of misinformation in here.

1) Governments do not print money. Governments take on debt (for the US in the form of treasury bills) and sell these bills to the public. No money printing involved. Money is only printed in two cases, and never by the government:
a) through the banking system, which can lend out 90% of the money they have on deposit, and that money gets re-depositited back into the banking system (after being spend), and the bank can lend out 90% of that money again and thereby "printing money".

b) when the central bank of the nation that issued the treasury bills buys these treasury bills, it does so by definition by printing money. Note tho that the central bank is not part of the governemnt (in the US the Federal Reserve is owned by its member banks, which consist of the local Federal Reserves and non disclosed private banks)

2) Economic growth/recovery does not only depend on spending&lending, but also on other economic factors, especially the price of energy. Thats why the oil crisis in the 70's was such a big problem, and thats one major factor why the economy stll has not recovered despite multi-trillion deficit spendings.

In the 2nd half of the 90ies Greenspan pumped half a trillion dollars into the economy, the result was the dotcom bubble and about a decade of growth. The balance sheet of the 8 major central banks world wide increased from 5 to 15 trillion USD between 2007 and 2012 and it had nearly no effect on the economy.
As long as oil prices remain around 100 USD per barrel WTI, it is unlikely that we will see any substancial economic recovery (historically, with oil prices around 100 USD, there was never a recovery).

3) Deficit spending has one huge problem when you do it to jumpstart the economy. You can't control where the money goes after the initial spending. Since most of the effect of the spending comes from the multiplier effect, that is the effect that those people produce who initially benefited from the deficit spending in spending the money again. And instead of lending out the money again, most banks for example used it to bolster their balancesheets and their liquidity (in addition to that, there are very few credible borrowers around atm).

4) The US spend alot of money on wars in the last 10 years, which is basically the worst way to spend money. It does not create new production and the value they create with the money gets ultimately blown up. Wars are consumptive spendings of the worst kind. If you do that during an economic downturn, you get a multiplier effect to the downside.

5) In my opinion, one of the largest problems is that the amount of debt world wide cannot grow anymore, at least not at the pace we are used to. If we check history since 1971 (the year when the gold backed currency era ended), total credit market debt in the US doubled every 7-8 years.

In 2008 total US creditmarket debt was 52 Trillion USD, and if this system would work like it did in the past, we would need a total of 104 Trillion USD in total creditmarket debt for the US in 2016. And we are nowhere near these numbers. I think, basically, put in laymans terms, there is not enough lending capacity out there anymore to support that kind of credit growth. (total credit market debt is all: state, local, public, private and federal together)
Austerity for the poor! Money for the rich!

Had the US Federal Reserve loaned out the $16 TRILLION ($16,000,000,000,000.00) to US citizens equally at 0% interest like it did to US and foreign banks, it would amount to about $50,000.00 per US citizen (or $2000.00 per human being regardless of nationality).

That amount would allow people to pay off debt, pay down a mortgage, make personal/business purchases, start businesses, invest, buy consumer goods, give to charity, get more education, or just stick into their bank accounts.

But...but...that's just more debt! Well, most people take out debt with interest to do the above things. Unless you're already rich, you probably need some debt. Scary and counter-intuitive, I know!

Debt at 0% interest instantly has real value in loaning it back out. That's exactly what the banks did. But it didn't have to be that way. Bailing out the people would have also bailed out the banks, but the criminals wouldn't have been able to skim the vast majority of it into their own bank accounts. So, that was a no-go from the start. In other words, the banks STILL got the money, AND got to keep their DEBT PAYMENTS from the dirty, dirty rabble.

No matter how that money is spent, where, pray tell, does it always end up?

The banks.

Either way the banks end up with the money. Either way, the CREDITORS GET PAID. Stimulus or de-leveraging, however you word it, helps EVERYONE. The criminal oligarchs still get the money. Just not the overwhelming majority of it.

Instead, the people will always be screwed over by the wealthy and powerful, and then told to feel guilty about it.

Never mind that the wealthy and powerful enriched themselves on the debts of the people, selling it globally spreading the risk to everyone but themselves, since they knew it was trash. Since they gamed the system, they're the moral ones ripe with cash.

Everyone else can go die in a gutter.

An argument for austerity ignores the objective reality of how the massive debt buildup was made and where the money "disappeared" to (it only existed on paper, and it ended up in the bank accounts of those who made the numbers up). It assumes the current status quo is necessary, and then demands that everyone else suffers until "things return to normal".

Meanwhile, the criminals with all the money try to tell some sob moral tale of how immoral poor people didn't pick the "correct" professions. Only idiots take out loans to be teachers. They should have gotten into finance to steal the big bucks. So now they need to suffer to learn to be better with "their" money. The only thing worse than the oligarchs are their useful idiots merrily singing the same song because they're doing "ok".

That's not even getting into how capitalism as a whole is a ponzi scheme, unless you're delusional and think the earth's resources are infinite. If our species was even remotely intelligent, it would stop this ponzi scheme and start planning how to survive long-term on earth, the only place humans have ever, and likely will ever, live.

Of course now I sound like an evil libtard leftie socialist atheist Nazi totalitarian NWO communist to say such things, so you can just ignore everything else I've said.

Money isn't everything, it's the only thing, right?
I'm still on the fence, and not even time might tell. It always surprises me how enthusiastically people can argument about this when there isn't even any one person in the world who understands the myriad of effects at work.

What can be understood is the motivation and ability of different parts of society to profit. "Inside job" is an interesting documentary on that.
I can't really agree with any of this post. Austerity isn't just a button you can press whenever national debt gets above a certain level.
Maybe reading this will help open your mind.
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