Mar 8, 2014
Debt Is the Problem
Posted on Mar 15, 2013
It’s not the kind created by government spending on social programs, however, says economist Michael Hudson, a professor of economics at the University of Missouri-Kansas City and the president of the Institute for the Study of Long-Term Economic Trends.
Private debt is the real problem. The bills racked up by credit card and mortgage holders, students and people who can’t pay medical costs are sucking away income that would otherwise be spent on manufactured goods and services in the market. What results is described by an esoteric term, “debt deflation,” in which too-large debts held by the consuming public creates a drag on the overall economy. Demand decreases, business revenues fall, layoffs commence and the whole economy stalls.
Hudson says public debt, which can be used to finance social programs via deficit spending, is part of the solution. Another is the writing down of debts to a level that people can pay or reducing the amount owed on a product like a home to the current market price. “The administration has bailed out the banks for their bad loans, but has kept the debts in place for most of the population. Its promise of debt write-downs has been empty,” Hudson writes.
The government can fund public debt to put people to work, provide essential services and end the recession easily. Why? Because sovereign governments (the U.S. is one, while Greece, which is subordinate to the European Union, is not) print their own money, and this sort of wealth creation, Hudson asserts, can be done without inflating the value of currency.
—Posted by Alexander Reed Kelly.
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