The debt hawks are to economics as the creationists are to biology.
The media have made America’s voters insane. Any program designed to stimulate the economy is rejected because it would “add to the debt” (which is the only way to stimulate the economy) or would “be paid for by our grandchildren” (a monstrous lie).
Thus we have the ridiculous situation in which banks are criticized for not lending enough (i.e., for giving the private sector too little debt), while the federal government is criticized for having too much debt. Think, people! Do you really believe the solution to our problems is for the private sector to take on more debt, while the federal government reduces its debts?
On the one hand we have the private borrowers, already overburdened with bad debt, and falling into bankruptcy every day. On the other hand we have the federal government, which can support a debt of any size, and which does not even use tax money to support spending, and which as a monetarily sovereign nation, cannot go bankrupt. Which do you think should take on more debt to stimulate our economy?
It is absolute madness to ask for more private deficit spending and less federal deficit spending. Yet, that is what the media, the politicians and the obsolete economists do.
In the post, Is federal money better than other money, I demonstrated that while reductions in federal debt growth immediately precede recessions, increases in private debt growth also lead to recessions. The media and the politicians, who want more private debt growth and less federal debt growth have it exactly backwards.
Rumor says the Obama administration soon will suggest Fannie and Freddie give “upside down” mortgage holders a break, paid for by the federal government. If true, you will hear a great protest that this will increase the falsely termed “unsustainable” federal debt. The protesters prefer that the private sector bear this debt, which for the private sector, truly is unsustainable.
I’m not sure when it became more “prudent” for the private sector to suffer bankruptcies, than for the federal government to create money, but I pray, for the sake of America, that the media, politicians and sleeping economists come to their senses. This backwards thinking has caused terrible misery, as backwards thinking always does.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity
#Monetary Sovereignty - Mitchell 
The protest on my end will not be the federal debt created but the unending moral hazard of bailing out every corporation and individual that voluntarily took on risk and now finds they can’t (or don’t want to)pay it back. If Obama wants to bail out upside down borrowers, what about upside down purchasers of stock, venture capital and small businesses that are failing?
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[“…what about upside down purchasers of stock, venture capital and small businesses that are failing?…”]
IMO they received theirs, just need to wait for it to ‘trickle down’ from Goldman, et al.
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I assume this is meant to be facetious since I clearly spoke against the moral hazard of bailing out corporations (Goldman included). Small business and individuals have not seen and will not see trickling down from Goldman and other financial institutions that were bailed out of their reckless investments.
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Jason, that’s the “If him, why not me?” syndrome. Every federal stimulus effort involves the government giving money to someone. Presumably, this help will go to a person or business that needs help. This leaves the others to complain about “moral hazard.”
My intuition is that helping people with upside down mortgages will prevent many bankruptcies, which in turn will prevent a snowball effect of bad debts and bankruptcies. But, of course, many other people and businesses need help, too. So, what would your stimulus look like?
Personally, I favor a flat payment to every man, woman and child in America, something like the original stimulus mailing, except about 10 times larger. I suggested this back in 2008. Had the government been less timid, the recession would have been shorter and less intense.
Rodger Malcolm Mitchell
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Rodger,
I’m more inclined towards Warren Mosler’s idea of a semi-permanent payroll tax holiday on both the employer and employee side. I think that will increase cash flow for both sides and incline business to do more hiring (and help people pay their mortgages). I think the problem with a stimulus mailing is that people see it as temporary and many are inclined not to spend it. OTOH, the expectation of continual stimulus mailings may be another disincentive to finding a job or creating your own business if you can’t find a job. Why bother working when stimulus checks are on the way. So, it’s not the deficit creation that bothers me but the disincentives to produce that concern me.
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Jason,
Since I long have advocated the elimination of federal taxes, I agree. I consulted with Warren when I wrote “Ten reasons to eliminate FICA”.
Of course, this leaves out all those people who do not receive a salary (“If him, why not me.”)
Rodger Malcolm Mitchell
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Jason, by the way, on page 149 of my book, FREE MONEY, written more than a decade ago, I ask, “Which taxes should be eliminated first?” My answer then was: “Eliminate Social Security and Medicare taxes.”
Same answer, today.
Rodger Malcolm Mitchell
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I get confused by this all the time. When the government (public sector) is a borrower, doesn’t the private sector have to be a saver? Doesn’t the deficit which is financed by a debt instrument require someone on the other side to put their savings in to create that debt instrument?
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The government sells T-securities (aka “borrows”) to all sorts of buyers: other nations (China is notable), state and local governments, businesses and individuals. For all of them, the purchase of a T-security is a form of saving.
Of course, the creation and sale of T-securities is unnecessary. The U.S. government does not need to borrow the dollars it has the power to create.
Rodger Malcolm Mitchell
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