The Limbo

How Low Can You Go

This is Graph #9 from mine of 22 May. It shows Gross Federal Debt. It shows how much Federal debt there is, compared to how much other debt there is in the U.S. economy, debt other than the Gross Federal Debt.

Federal debt used to be the big portion, back when the economy was good, after World War Two, for 20 years or more. But all the while, the Federal debt portion was shrinking, and the other portion was growing.

Then, in the 1970s the Federal portion stopped shrinking and started growing about as fast as the rest of debt. Oddly then -- or, as I think, by no coincidence at all -- the economic growth boom ended. We have been in the doldrums ever since.

...except for the late '90s boom, when the Federal portion again was falling.

One solution that comes to mind, one way to get another growth boom, would be to reduce the Federal debt (as many people wish to do). The trouble is, the Federal debt is already so low on this graph that it barely has room to drop further. Before the Federal debt can fall, it has to go up again. There are two ways to do that.

We can have massive increases in the Federal debt and deficits, as we have had recently. But that makes total debt bigger, and that in itself is a problem.

And it won't work anyway, unless "other" debt is falling.

The other way is to reduce the level of "other" debt. Reduce non-Federal debt. We can do this by waiting 20 or 30 years or more, while people gradually reduce their debt by hook or by crook. Or we can do it by an act of policy: debt forgiveness, or something equally quick and painless.

We might even benefit from a strategy that increases the Federal debt and uses the money not to expand government but just to pay off private-sector debt.