The Indebtedness

The great burden of debt in the world today -- in the U.S. and in nations that modeled their economic policy on ours -- is the result of U.S. economic policy.

A simple change is all that is needed to correct the policy: We must encourage the accelerated repayment of debt.

Unfortunately, we waited too long. We had the financial crisis, our Paulson moment, and then the economy started to fix the problem by itself. Everybody and his brother scramble to get out of debt.

One word comes to mind: disarray.

The new policy will help: Accelerated repayment of debt will help. It will ease cost burdens a bit, and it will create confidence that government is finally doing the right thing: Helping us do what everyone is already trying to do.

So we get the debt reduced a little faster this way, because of the coordination of effort. And the Second Great Depression lasts 8 years maybe, instead of ten.

Not good enough.

Almost everybody says the economy won't recover until we get the debt paid down a lot. And everybody is doing what they can. And the new policy will help. But we need to do better, faster. The longer we wait, the harder it is to recover.

As a temporary fix for the cyclical problem, I propose direct action. Let the Federal Reserve print another trillion dollars. Only don't let them use it to buy up bad debt from the banks. Instead, let them use it to pay off debt for people. Direct action.

A trillion dollars of debt goes away, painless and quick. The money goes into the banks, not into the spending stream where it may cause inflation. And, well, borrowing creates money, and paying off debt destroys money, so the trillion dollars vanishes.

Actually, a trillion dollars of credit-in-use becomes a trillion dollars of available credit again. Our savings, in the banks, ready to lend. Ready to create growth or inflation.

But with enough debt destroyed, new spending will create growth. The reduction of private-sector debt is the key to our next golden age.