Reply #5: Simple analogy [View All]

[TrogL]

I have a balanced budget. My furnace is old but workable. My old roof has a small leak.

Scenario 1 - do nothing

• Roof leaks gets bigger.
  
• Social worker threatens to remove kids unless unsanitary mess fixed.
  
• Max out 29% credit card paying for roof patch.
  

Scenario 2 - surplus

• Raise and bonuses/commissions at work due to strong economy
  
• Fix and insulate leaking roof paying cash
  
• Heat bills go down because of better insulation
  

Scenario 3 - Keynesian deficit spending

• Shop around for best rate for home upgrade loan
  
• Fix and insulate leaking roof and replace furnace with money borrowed at 12% - payments $125/month
  
• Heat bills go down $250/month because of efficient furnace and better insulation
  
• pays for itself in six months
  

The Canadian government is thinking about failing to do a #2. They ran up a $6 billion surplus and there's talk about blowing it all on debt-paydown instead of buying some replacement military hardware and throwing some money at health care infrastructure.