I agree that debt based growth is sub optimal. At least when we're pursuing sound money policies the temptation to write excessive amounts of debt is kept under control. And it is more likely to be used for production and infrastructure investments rather than speculation."Secret sauce of prosperity" or "Achilles's heel of finance-based growth":
"The moral is that the economy’s ability to produce and earn enough of a surplus to pay exponentially rising interest charges is limited. The more it is stripped to pay creditors, the less able it is to produce and pay as a result of unemployment, underutilization of resources, emigration and capital flight.
"In the two thousand years since the birth of Christ, the European economy has grown at a compound annual rate of 0.2 percent, far lower than the level at which interest rates have stood. Yet financial fortunes have crashed again and again – in part because interest payments have absorbed the revenue that otherwise would have been available for new direct investment.
"The inability of productive investment opportunities to keep pace with the expansion of credit is the Achilles heel of finance-based growth.
"How can compound interest be paid?
"Who will end up paying it?
"Who will receive it, and what will they do with it?
"If banks and a creditor class receive this money, will they spend it domestically to maintain balance, or will they drain the economy’s income stream and shift it abroad to new loan markets, leaving the economy strapped by the need to pay interest on the growing debt?
"If the state accrues this money, how will it recirculate it back into the economy?"