Isn't our economy just like one big game of Monopoly?

Question

I know some people get all crazy and say "Don't go into debt, it will DESTROY you." By at yard sales! Eat Ramen Noodles!

But doesn't the one thing that keeps our economy going is that people DO spend money in a capitalist economy?

Wouldn't our economy collapse if we went into Best Buy and there was no one there one day because they were hoarding all of their money in Folger's can's in their basement?

I think economists smile every time someone files bankruptcy. It means we are consuming...............which drives everything else.

Answer 1

Consumer spending makes up more than half the US economy, decreasing spending means less production, higher unemployment, etc.

Investment may make up the difference, but chances are that firms are less likely to invest when demand is low (thus the need for a certain amount of fiscal spending to try to keep things going).

Bankruptcy, however, decreases the spending potential of someone, so it would not be a good thing in economists eyes- but a necessary thing in some cases.

Answer 2

Your premise is untrue. When you save (unless you really are dumb enough to do so in your basement) you are allowing others to use those funds productively and give you a return on your investment. In all likely the "productivity" of those funds is greater than what you could produce with them. That's why they're willing to pay you to rent your money.

Answer 3

Just like Monopoly one person ends up with all the money and all the property .

Answer 4

Spending borrowed money can create the appearance of wealth.  You can max out your credit card and stay in a posh hotel for a few days paying $1000.00 per day.  And you can rent the latest Ferrari for a few more thousand dollars to impress the good-looking girls.

But eventually your bills are going to catch up with you.  And your appearance of wealth will be replaced by the trappings of poverty.

It's like that with all people who borrow money and live it up beyond their means.  You can't have something for nothing.

The only time it makes sense to borrow money is when you use that money to increase your earning potential.  Because your increased income offsets and justifies the extra expense of the interest you have to pay on your loan.  

But when you borrow money for consumption purposes.  Then you simply end up paying more for everything because of the added interest payments.  And you make your future more difficult to cope with because of the added burden of repaying your debts with interest.

Borrowing money for consumption is a loosing proposition economically speaking.

Answer 5

It is true, saving money in coffee cans would hurt the economy.   Most people would not recommend this.

Smart money is put in investments though, including banks.   When you save the money in a bank, the bank uses that money to put back in the economy in the form of investments.

Generally, economists arent thrilled when someone goes bankrupt, because it means that they financed their purchases with debt.   That means someone has to pay for that, either the stakeholders of the company getting shafted by lower returns on investments, or the customers of that company paying higher prices or rates to cover that debt loss.   The only person the debt dissapears for is the person declaring bankruptcy, the creditors all get to eat the loss (which 99 out of 100 times they are passing along to someone else).