Do something? but debt still a noose
With Obama’s town hall talk today and the FOMC meeting Tues, we will hear again that from both a fiscal and monetary policy view, the Gov’t will continue to ‘do something’ to recharge economic activity. After seeing the Fed’s Q2 flow of funds statement on Friday, the endemic problem plaguing growth still exists and that is too much debt. Household debt is down only 3.4% from its record high, corporate debt is at an all time record high (the liability side of all that cash on the balance sheet that we hear about) and federal Gov’t debt is of course at a record high. The only sector that has deleveraged to any discernible degree is the financial area whose total debt is down 14% from its peak. So, instead of letting a recession cleanse the economy of its previous excess of too much debt, the Gov’t is still trying to put humpty dumpty back together again, that of borrowing and spending to generate growth as opposed to saving and investing.
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September 21st, 2010 at 2:31 pm
Mr. Boockvar, let me explain something to you. The Federal government is monetarily sovereign (See: Monetary Sovereignty). That means it has the unlimited ability to create money, and thus, the unlimited ability to service debt. In fact, when the federal government spends, it creates money.
Households and corporations are not monetarily sovereign. Neither are Greece, Italy or Ireland. They do not have then unlimited ability to create money, and cannot service unlimited debt. Canada, China and Japan are monetarily sovereign. Like the U.S., they create money by spending.
Anyone not understanding the significances of monetary sovereignty cannot understand economics.
Because a growing economy requires a growing supply of money, our economy requires a growing supply of federal debt. In fact, six of the seven Recessions since 1971 (the year we became monetarily sovereign) have followed periods of reduced federal debt growth, and all recoveries have come with increased federal debt growth. And all six depressions have immediately followed periods of federal surplus.
In economics, debt = money, so to say the economy has too much debt is to say the economy has too much money, when in fact, today’s economy is starved for money. Yes, some households and corporations have more debt than they can service (though there are complaints that banks don’t lend enough !!), but the federal government has far too little debt.
I hope you will access the above links, to learn about monetary sovereignty, before posting any further comments on the economy.
Rodger Malcolm Mitchell