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Thursday, November 7, 2013

Paul Krugman, "The Mutilated Economy": We Owe the Money to Ourselves?

Never once mentioning the name of America's president, Paul Krugman, in his latest New York Times op-ed entitled "The Mutilated Economy" (http://www.nytimes.com/2013/11/08/opinion/krugman-the-mutilated-economy.html?_r=0), begins by telling us that the US economy has yet to recover:

"Five years and eleven months have now passed since the U.S. economy entered recession. Officially, that recession ended in the middle of 2009, but nobody would argue that we’ve had anything like a full recovery. Official unemployment remains high, and it would be much higher if so many people hadn’t dropped out of the labor force. Long-term unemployment — the number of people who have been out of work for six months or more — is four times what it was before the recession."

Who, according to Krugman, is responsible for this corrosive unemployment? The "deficit scolds," of course, who have attempted to hold down US government debt, and who have plainly taken leave of their senses. Krugman writes:

"This never made sense even in its own terms. As some of us have tried to explain, debt, while it can pose problems, doesn’t make the nation poorer, because it’s money we owe to ourselves. Anyone who talks about how we’re borrowing from our children just hasn’t done the math."

"It’s money we owe to ourselves"? Oh really? Although approximately a third of federal debt consists of intragovernmental holdings, another third is held by foreign governments, including China (some $1.3 trillion) and Japan (some $1.1 trillion).

Money owed to foreign governments is not money owed to ourselves.

What happens if China, which is plainly worried by the US economy (see: http://www.washingtonpost.com/blogs/worldviews/wp/2013/10/09/china-is-worried-about-the-u-s-shutdown-and-it-should-be/), loses faith in the US dollar?

Answer: Why worry? Be happy.

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