The education bubble: Larry Summers quote

Zero Hedge writes, citing Larry Summers:

The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending.” Larry Summers, source

It is only fitting that the sequel to what to a large majority of people is the dumbest quote in history, will once again come from Larry Summers:

Rather than focusing on lowering already epically low rates, governments that enjoy such low borrowing costs can improve their creditworthiness by borrowing more not less.”  Larry Summers, source.

I guess that Summers has never heard of debt to equity ratio.  A strong debt to equity ratio is a crucial criterion in a creditworthiness equation; the problem with borrowing more is that the debt that greatly increases the numerator will at the same time decrease the denominator because:  equity = assets minus liabilities (debt); debt/equity ratio = debt/assets-debt.  Thus, the debt to equity ratio must necessarily increase, reducing the credit-worthiness of the entity.

Thus, mathematically speaking, the only way to increase creditworthiness is to increase assets without increasing liabilities.  Deficit spending, in most cases, does the opposite–it increases debt without increasing assets, thus destroying the creditworthiness of the government.

What does this have to do with the education bubble?  Larry Summers was president of Harvard University, the smartest university in the world, that produced such luminous graduates as George W. Bush and Barack Hussein Obama.

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