Alex Williams Let's start with an example you can get your head around, buying a home with a mortgage.Suppose you buy a house for $500,000 with 5% ($25,000) down and a $475,000 mortgage.  At purchase, the mortgage is 95% of the sale price.Now assume the value of the house increases by 3% a year, and that you only pay the interest on the mortgage.After 1 year, the house is worth $515,000.After 2 years, $530,450.After 3 years, $546,364After 4 years, $562,754After 5 years, $579,637At that point, the $475,000 mortgage is only 81.9% of the value of the house. If you can continue to make your payments, the debt should become a smaller and smaller part of the value of your asset (the home).  (Some of us who can afford to do so think it can be a wise move to pay down the principal on the mortgage as well, if the interest rate on the mortgage is higher than the interest one can earn on the cash.)In a similar manner, if the Gross Domestic Product (GDP) of the US increases by 3% a year, a dollar of debt taken out in Year X is less onerous in Year X+5, by a similar proportion, assuming the numbers I used.  As time progresses, the percentage that the dollar of debt relative to the GDP should diminish more.That is why it is not a Ponzi scheme.

Alex Williams Let's start with an example you can get your head around, buying a home with a mortgage.Suppose you buy a house for $500,000 with 5% ($25,000) down and a $475,000 mortgage.  At purchase, the mortgage is 95% of the sale price.Now assume the value of the house increases by 3% a year, and that you only pay the interest on the mortgage.After 1 year, the house is worth $515,000.After 2 years, $530,450.After 3 years, $546,364After 4 years, $562,754After 5 years, $579,637At that point, the $475,000 mortgage is only 81.9% of the value of the house. If you can continue to make your payments, the debt should become a smaller and smaller part of the value of your asset (the home).  (Some of us who can afford to do so think it can be a wise move to pay down the principal on the mortgage as well, if the interest rate on the mortgage is higher than the interest one can earn on the cash.)In a similar manner, if the Gross Domestic Product (GDP) of the US increases by 3% a year, a dollar of debt taken out in Year X is less onerous in Year X+5, by a similar proportion, assuming the numbers I used.  As time progresses, the percentage that the dollar of debt relative to the GDP should diminish more.That is why it is not a Ponzi scheme.

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