Monday, July 16, 2012

Debt, doom and despair

It is a matter of some comment that the public debt burden of the United States has recently increased somewhat.
Upward, ever upward
And that this surge in debt has come from increased spending
A more elevated state
More than from falling revenues.
Buy now, pay later
(The "negative deficits" in Truman's and Clinton's second terms meant the US federal government was running a budgetary surplus.)

Fiscal surge
This surge in the federal budget deficit and federal public debt was in the service of fiscal stimulus (and keeping State and Local government spending up in the face of falling revenues). Various Keynesians have argued that the fiscal stimulus was not nearly large enough or, at least, could have been usefully larger.

My take on this is that (1) if the US Congress could spend so much for so little stimulus effect, then fiscal stimulus is--as a matter of practical politics--an amazingly wasteful way of getting economic stimulus. And (2) since the fundamental problem was contractionary monetary policies, and the monetary authorities "move last", then fiscal stimulus becomes even more problematic. (As Scott Sumner points out, the fiscal multiplier is a measure of central bank incompetence.)

Your debt, my asset
But what I want to focus on here is the level of US debt. The first thing to remember, is one person's debt is another person's asset. So, a measure of US public debt is also a measure of financial assets held by whomever. It is a perfectly reasonable question whether the US state can manage its level of debt, and whether its public finances might have become somewhat debt-addicted, but let us not get the idea that debt is all just negative. Lots of folk, including lots of American citizens (indeed, mostly American citizens), are getting nice incomes out of that debt. As long as US debt/bonds are regarded as "safe assets", they will be saleable. (The less safe they are rated, the more expensive they will be to sell, but there are no signs of that.)

[Read the rest at Skepticlawyer or at Critical Thinking Applied.]

1 comment:

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