Sunday, July 17, 2011

September 15, 2008

Source: Wikipedia

Source: Yahoo! Finance
The week before Lehman filed for bankruptcy, the Volatility Index was still within the range it had been in for a year. Beginning the week of the filing, the VIX skyrocketed. It did not return to the previous level for a year. And we can still feel the repercussions.

That was one investment company. Wanna try it with the Federal government?

Look: In the economy, things collapse in an instant. But it takes a long time to rebuild. We don't want to take unnecessary risks. We don't want to risk damaging the thing we all rely on for a living.

Anyway, our economic problems are not caused by the Federal debt. Non-Federal debt is the cause. Excessive private-sector debt is the cause of our economic troubles.

You will never find me recommending "more government spending". I don't think we need more government spending. I think we need to fix the imbalance between money and debt, or between private-sector and public-sector debt (depending on how you phrase it).

Our economic problems are not caused by the Federal debt and deficits. Balancing the Federal budget will therefore not solve the problems. The solution lies elsewhere.

So the whole "debt ceiling" argument is a dangerous waste of time.

I don't know if I can be any more clear about it.


nanute said...

I don't see how you can say the debt ceiling argument is a dangerous waste of time. If it is dangerous, and it is, it can't be a waste of time. A large portion of public sector debt was recently absorbed by the public sector. Sooner or later, it is going to have to be reconciled. One thing about this debt ceiling debate I haven't seen mentioned: Surely the government is going to have to borrow more in the near term. If the market reacts in a negative fashion as a result of failure to raise the limit, the cost of borrowing will rise significantly. In other words, this could end up costing much more than proponents of not raising the limit realize. Beware of self inflicted consequences.

nanute said...

should have been and if it is

The Arthurian said...

Hi, nanute.

To fail to increase the debt ceiling is dangerous indeed, as I tried to show with the Lehman and VIX graphics.

But the argument coming from politicians and the media is a huge waste of time. The stumbling-block is budget cuts. They bicker over how much to reduce spending to curtail federal debt growth. But (as my link well shows) federal debt growth is not what hinders economic performance.

It is excessive private debt that hinders economic performance. Yet excessive private debt is not even part of the discussion. Thus the discussion is a waste of time.

The best argument anybody else has, for raising the debt ceiling, is that it is dangerous not to do so. My argument is much stronger, I think: Federal debt is not even the problem, so there is not reason *not* to raise the ceiling.

The Arthurian said...

nute, I think (for example) that the Non-Federal Relative is a much stronger argument than Mosler's aphorisms.