Follow by Email

Friday, August 21, 2015

Paul Krugman, "Debt Is Good": In for a Penny, in for a Pound!



US national debt is fast approaching an unsustainable $18.3 trillion, amounting to more than $57,000 for every American man, woman and child. This compares with some $30,000 for every man, woman and child in America in June 2008, which, at the time, elicited presidential candidate Obama's declaration:

"That's irresponsible. It's unpatriotic."

Well, $57,000 per American is not good enough for Paul Krugman, who, in his latest New York Times op-ed entitled "Debt Is Good," would have us know:

"Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.

. . . .

One answer is that issuing debt is a way to pay for useful things, and we should do more of that when the price is right. The United States suffers from obvious deficiencies in roads, rails, water systems and more; meanwhile, the federal government can borrow at historically low interest rates. So this is a very good time to be borrowing and investing in the future, and a very bad time for what has actually happened: an unprecedented decline in public construction spending adjusted for population growth and inflation."

From whom should the United States be borrowing? More money should be borrowed from China, which is currently mired in its own set of economic problems? As reported by Reuters in an article entitled "Sharp China factory slowdown in August raises global growth fears" by Koh Gui Qing:

"Following three decades of blistering double-digit economic growth, Chinese authorities have had limited success in shoring up activity this year despite four interest rates cuts since November.

Worse, last week's shock 2 percent devaluation in the yuan and a near-collapse in Chinese shares over the summer that was countered by a massive stock market rescue do not appear to have calmed investor jitters.

The yuan has slid nearly 3 percent since its Aug. 11 devaluation, a fall that some analysts say is too modest to boost Chinese exports, but notable enough to raise fears of competitive currency devaluations between governments."

And while China is busy devaluing the yuan, the Federal Reserve might soon be raising interest rates in the US, i.e. a paradox which is certain to further increase the outrageous trade imbalance between China and the US.

More debt? I don't think so, unless someone is truly intent upon doubling down on a bad bet at the economic roulette wheel.

No comments:

Post a Comment